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This year has been a good one for the FTSE 100 index of leading British shares. Last month, it hit a new all-time high. That is music to the ears of the legions of British investors whose Stocks and Shares ISAs give them exposure to the blue-chip index.
To illustrate that, take the example of an adult who decided to invest their £20k annual Stocks and Shares ISA allowance into the FTSE 100 five years ago. What would it be worth now?
Up, up and away!
Over the past five years, the FTSE 100 has grown in value by 49%. That means the ISA would have grown by almost half, to around £29,800. For an assortment of mostly mature businesses and a five-year timeline, that strikes me as an attractive performance.
Making the right choices as an investor
When talking about investing in the index here I do not mean buying each of the 100 shares individually. That is possible, but would be administratively complex and costly. Instead, I am referring to the far simpler approach of buying shares in an index tracker.
As there are lots of choices available, it pays to compare the market when choosing one. Come to that, it also makes sense to do the same for the Stocks and Shares ISA itself.
Fees, commissions and other charges vary by provider and even sometimes within a single provider’s different product offerings. So again, the financially astute investor will compare the market.
Don’t forget the dividends!
On top of the capital gain above, there are dividends to consider. Currently, the FTSE 100 offers a dividend yield of 3%.
Different FTSE 100 trackers have a different approach to dividends. Some pay them out to shareholders, while others reinvest them to help boost capital growth. Either way, a Stocks and Shares ISA could potentially be helpful here. Dividends and capital gains inside the ISA wrapper are tax-free.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Looking for FTSE 100 bargains now
With the FTSE 100 riding high – it remains close to its all-time peak achieved last month – it may be worth asking, how attractively valued is it now?
Rather than buy into the index overall, my approach has been to look for individual FTSE 100 shares that I think offer attractive value.
One I think merits investors’ consideration right now is Standard Life (LSE: SDLF). At 6%, its dividend yield is twice as juicy as that of the wider FTSE 100 index.
And although future dividends can never be guaranteed at any company, Standard Life aims to grow its payout per share in coming years, as it has been doing in recent ones.
Its customer base of 12m gives it a strong competitive advantage, offering economies of scale and in-depth insight into what clients want. The firm also benefits from a proven business model and strong brand.
One risk is any property market downturn leading to the company’s mortgage book valuation bring written down. But I like Standard Life’s proven cash generation potential and believe its long-term outlook is attractive.
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Christopher Ruane does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
