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The FTSE 100 won’t be the best place for every investor. No, everyone needs to base their choices on their own needs and their own research. But it’s the place I most want to put my money in 2024, and beyond.
Over in the US, both the S&P 500 and Nasdaq keep hitting new all-time highs. In fact, the S&P 500’s up 23% so far in 2024, while our dear old FTSE 100 has put on just 9%. And the Footsie still hasn’t matched the 52-week high of 8,474 points it reached as long ago as May.
So the UK stock market’s a loser then, and best avoided? No, it’s still my favourite, for a few key reasons.
But low, right?
The main reason is that I want to buy stocks when they’re cheap. Isn’t that what everyone wants? It might make economists happy when stock markets are buzzing. But if we plan to keep buying shares for the long term, we should surely want prices and valuations to stay low.
My other key reason is that I go mostly for dividend stocks, and the FTSE 100 has some of the best yields I can find. We’re looking at a forecast average dividend yield of 3.7% this year, including all the low ones, rising to 4% in 2025. That’s just ordinary dividends, and doesn’t include any specials.
And we also have what should be a long-term boost from the £50bn in share buybacks that have been announced so far in 2024.
Long-term favourite
As an example, let’s look at one of my top FTSE 100 stocks, Aviva (LSE: AV.)
The five-year share price chart above, might not look great. But it’s exactly what I want, and I hope it stays unimpressive for at a few more years yet.
What it means is I can buy more Aviva shares on a forward price-to-earnings (P/E) ratio of 12 this year, with forecasts dropping as low as 9.2 by 2026 (based on today’s price).
And I could snag a fat 7% dividend yield, if those forecasts are accurate. Oh, and the analysts think it will keep on rising in the next few years too.
Risks
The Aviva dividend, like any dividend, isn’t guaranteed. The insurance sector carries cyclical risk too, and today’s upbeat outlook could change quicker than we might expect. Inflation and interest rate uncertainty don’t help.
Investing in this sector, as in any sector, means we need to understand the businesses we buy. And that brings me to another reason why I like FTSE 100 stocks so much.
I understand the insurance sector reasonably well, especially in the context of the UK market and economy. And that must give me an advantage.
Bottom line
So to sum up, investing in FTSE 100 stocks puts me in businesses I understand in the economy that I know best. And at times like these, it can maximise my chances to buy cheap, and hopefully lock in years of dividend income.
Oh, and there are other FTSE 100 sectors I also like and understand, also at good valuations. So there’s plenty of scope for diversification.
