Tuesday 10 July 2012

The FTSE 100 - Here Today, Gone Tomorrow!

A house built on sand
The FTSE 100: big, reliable 'Blue Chip' companies quoted on the London Stock Exchange. Shares that you can rely on for a long-term, buy-and-hold investment?

Well, generally yes. However, as I have pointed out before (in relation to dividend-paying shares), things change -possibly more than you think. Our search for stability is maybe illusory.

The FTSE 100 superseded the previous FT 30 index and gave a much better snapshot of the London market, being weighted by size and covering a wider range of companies and introducing quarterly relegations and promotions.

Of the 100 companies in the original FTSE 100 in 1984, only 42 remained 20 years later. Think about that: although 20 years seems like a long time, it is shorter than most people's investment horizon.  And if you were buying the FTSE 100 - more than half of the companies were relegated, acquired, merged, broken up or just plain failed. And these are supposedly the 'safest' shares.

This fascinating statistic comes from an old Motley Fool article by Maynard Paton, which has a lot more detail, including the following results for the original 100:
  • 2 went bust
  • 3 slid down to the small-cap index
  • 14 were relegated to the FTSE 250
  • 36 were acquired
  • 4 were broken up or pursued de-mergers

So, don't fool yourself - investing in the stock market is a risky business, no matter how safely you try to do it. Make sure you diversify and keep lots of cash for emergencies.

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Interesting article. I think most people in the wake of the current economic turmoil are aware that blue chips don't come with guarantees but perhaps we don't consider just how fragile a FTSE100 listing is.

    One small note though: I believe the predecessor to the FTSE100 was actually the FT30 and not the FTSE30.

  2. Thanks Jonathan - correction duly made!