How to Invest in the FTSE 100 Index

The FTSE 100 (pronounced “Footsie 100”) is one of the most well-known stock market indices in the UK. It represents the 100 largest companies listed on the London Stock Exchange by market capitalisation — including household names like BP, HSBC, and Unilever. If you’re looking to invest in UK blue-chip shares with built-in diversification, the FTSE 100 is a solid choice.

Here’s a step-by-step guide on how to invest in it.

What Is the FTSE 100?

FTSE stands for Financial Times Stock Exchange.
The index includes the top 100 companies by market cap listed on the London Stock Exchange (LSE).
It covers a wide range of sectors — energy, finance, pharmaceuticals, consumer goods, and more.
The FTSE 100 is seen as a barometer of the UK economy and is updated quarterly.

Why Invest in the FTSE 100?

✔ Diversification
You’re investing in 100 companies across various industries — lowering the risk of betting on a single firm.

✔ Stability
Many FTSE 100 firms are well-established and generate steady income, including regular dividends.

✔ Passive Investment
You don’t need to pick individual stocks — you can track the entire index via a fund or ETF.

✔ Income Potential
Many FTSE 100 companies pay attractive dividends, which can provide passive income or be reinvested.

How to Invest in the FTSE 100 – Step-by-Step

1. Open an Investment Account

To invest in the FTSE 100, you’ll need a platform that allows you to buy funds or ETFs.

Popular UK platforms:
- Freetrade
- Hargreaves Lansdown
- AJ Bell
- Vanguard UK
- Interactive Investor
Choose an account type:
- Stocks and Shares ISA (tax-free gains and income)
- SIPP (Self-Invested Personal Pension – for retirement)
- General Investment Account (GIA)

✅ Tip: Use a Stocks and Shares ISA if you’re investing for general wealth-building and want to avoid capital gains and dividend taxes.

2. Choose How You Want to Invest in the Index

You can’t buy the FTSE 100 directly — but you can invest in it through:

a) Index Funds (Mutual Funds)

These are managed by firms like Vanguard or Fidelity and aim to replicate the performance of the FTSE 100.

Example: Vanguard FTSE 100 Index Fund
Typically cheaper than actively managed funds
Good for “buy and hold” investors

b) Exchange-Traded Funds (ETFs)

These are traded like shares on the stock market but track the FTSE 100.

Examples:
- iShares Core FTSE 100 ETF (ISF)
- Vanguard FTSE 100 UCITS ETF (VUKE)
Low fees (often under 0.1% per year)
Real-time pricing (you can buy/sell during market hours)

c) Investment Trusts

Closed-ended funds that invest in FTSE 100 companies or similar UK large-cap portfolios.

May trade at a discount or premium to net asset value (NAV)
Often managed by a professional team with specific strategies

3. Decide How Much to Invest

Start with a lump sum or use monthly contributions (called “pound-cost averaging”)
Regular investing can smooth out market ups and downs
You can start from as little as £25–£100/month

4. Review Fees and Charges

Platform fee: charged by your investment platform (e.g. 0.25%–0.45% annually)
Fund/ETF ongoing charge: cost of running the fund (e.g. 0.05%–0.15%)
Dealing charges: may apply for ETFs or individual shares

✅ Look for low-cost index funds or ETFs to keep more of your returns.

5. Monitor Your Investment

Check performance every few months, not daily
Reinvest dividends for compounding growth
Rebalance yearly if needed, depending on your overall portfolio goals

⚠️ Risks to Be Aware Of

The FTSE 100 is heavily weighted towards energy, finance, and mining, so it may underperform in tech-driven markets
Currency fluctuations can impact company earnings (many firms earn globally)
Stock market investments can go down as well as up — especially in the short term

Example Scenario

Let’s say you invest £3,000 in the iShares FTSE 100 ETF (ISF) through a Stocks & Shares ISA.

Annual return (including dividends): ~6–8% (historical average, not guaranteed)
Fees: 0.07% fund charge + 0.25% platform fee
You could receive dividends every quarter, which you can withdraw or reinvest.

Over 10 years, reinvesting dividends could significantly boost your total returns due to compound interest.

Summary – Is the FTSE 100 Right for You?

Benefit	Description
Diversified exposure	100 top UK companies across multiple sectors
Passive investing	No need to research individual stocks
Dividend income	Regular payouts from mature firms
Long-term potential	Ideal for building wealth over time
Low fees	Especially with ETFs and index funds

If you’re looking for simple, broad exposure to UK equities with the potential for growth and income, investing in the FTSE 100 through a low-cost fund or ETF is an excellent choice.