FTSE 100 Investment Returns: What a £5k Investment Would Look Like Now

Discover how a £5,000 investment in a FTSE 100 index fund a decade ago would have grown today. Explore the returns and compare it with individual stock picking strategies.

Investing in a FTSE 100 index fund is a straightforward method for achieving diversification in your investment portfolio. This approach offers broad exposure to the UK’s largest companies, providing a solid foundation for long-term growth. But what if you had put £5,000 into a FTSE 100 tracker fund 10 years ago? Let’s explore the potential returns and how this compares with investing in individual stocks.

FTSE 100 Investment Returns Over 10 Years

When it comes to FTSE 100 investment returns, there are several tracker funds available. One popular option is the Vanguard FTSE 100 UCITS ETF (LSE: VUKE). This fund is known for its low costs and broad exposure to the FTSE 100 index.

In July 2014, the Vanguard FTSE 100 UCITS ETF was priced at £30.36 per unit. With £5,000 to invest, you could have purchased approximately 165 units. Fast forward to today, and the price has increased to £35.56 per unit—an impressive 17% gain over the decade. This means that your original £5,000 investment would have grown to £5,867.40, assuming you held onto those units for the entire period.

But that’s not the whole story. The real benefit of investing in a FTSE 100 index fund comes from dividends. If you had simply held your units without reinvesting dividends, you would have received an additional £2,081.19 in dividends. Adding this to your investment value, your total would be £7,948.59, which represents an overall return of just under 59%.

Comparing Individual Stocks

While a 59% return might sound attractive, it’s important to understand that this is a nominal return and doesn’t account for inflation. Also, there’s the opportunity cost of not investing in individual stocks, which might have performed better.

For example, consider London Stock Exchange Group (LSE: LSEG). Over the past 10 years, LSEG’s share price has skyrocketed by approximately 430%. This remarkable performance is coupled with a steady stream of dividends. Such significant outperformance highlights the potential benefits of investing in individual stocks rather than sticking solely with a FTSE 100 index fund.

London Stock Exchange Group: A Case Study

London Stock Exchange Group’s recent partnership with Microsoft to develop generative artificial intelligence (AI) models is a prime example of how individual stocks can offer substantial growth opportunities. This collaboration could provide LSEG with a competitive edge and enhance its customer offerings, making it a compelling investment.

LSEG faces challenges such as a lack of new UK IPOs and a forward price-to-earnings (P/E) ratio above 26, which is higher than the average for the FTSE 100. Despite these factors, the company’s strong performance and future prospects make it an attractive option for investors willing to take on a bit more risk.

The Bottom Line: Tracker Funds vs. Individual Stocks

When comparing FTSE 100 investment returns with individual stock picking, it’s clear that both strategies have their pros and cons. On one hand, tracker funds like the Vanguard FTSE 100 UCITS ETF offer steady, reliable returns with lower risk. On the other hand, individual stocks such as LSEG can provide exceptional returns but come with higher volatility and risk.

For cautious investors, sticking with a FTSE 100 index fund might be the best choice. It offers diversification and reduces the risk associated with individual stock investments. However, a mixed approach—combining both tracker funds and selected individual stocks—could provide a balanced strategy, potentially maximizing returns while managing risk.

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The Motley Fool UK also recommends Microsoft and Vodafone Group Public. Please note that views expressed are those of the writer and may differ from official recommendations provided in our subscription services like Share Advisor, Hidden Winners, and Pro.

The Motley Fool believes that incorporating a diverse range of insights helps investors make better decisions and achieve their financial goals.

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