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The stock market has been on some journey in the past 10 years. Brexit, the pandemic, and the more recent turmoil we’ve seen are just some of the events that have influenced its performance. And this has me questioning how FTSE 100 stocks fared.
Well, simply put, not great. In the last decade, the index has returned a dire 14%. For comparison, its counterpart across the pond, the S&P 500, has risen 165%.
So, does this mean FTSE 100 stocks should be avoided? In short, no. And in fact, it’s the opposite. Let’s explore.
Value to be had
Granted, the performance of the UK-leading index in recent times wouldn’t have had investors on the edge of their seats. But with this comes value and the opportunity to snap up quality stocks for cheap.
For example, the average price-to-earnings ratio for the Footsie sits at around 13 times earnings. In the US, it’s over 18 times.
Long-term potential
As mentioned, plenty of reasons have combined to deflate the UK’s performance in the past decade. But most recently it’s been racing inflation.
The Bank of England has been aggressively hiking interest rates in the past 18 months or so. And many predict it will continue to do so well into 2024.
This has weighed heavily on businesses across all sectors. But I deem this a short-term concern.
As a Fool, I view all my investments over a long-term horizon. The stock market has proven time and time again that playing the long game is the most efficient way to reap rewards. By buying stocks now, I’m placing myself in a strong position to achieve long-term gains.
What I’d buy
So, we’ve established now is a great opportunity to add FTSE 100 stocks to a portfolio. But targeting the correct companies is no easy feat.
However, there are a few methods I can adopt to enhance my potential for greater returns.
Firstly, I’d target a variety of industries within the index, to ensure my investments aren’t reliant on one company or industry.
On top of this, I’d look to stocks with attractive dividend yields. Generating passive income will allow me to offset, to a degree, the impact of inflation. And the Footsie is a great place to start, with 15 companies offering a yield equal to or higher than the UK inflation rate (6.8%).
Of these, I’m a fan of Legal & General and British American Tobacco. Others, such as Vodafone with its 10.8% yield, also look attractive.
There are also companies that offer yields below the inflation rate but that would still provide me with a solid source of passive income. Of these, I’ve recently added Barclays to my portfolio, while I also topped up my position in Lloyds.
Of course, I must be aware dividends can be slashed or halted at any moment. And the stock market may remain choppy in the near term.
Yet with that said, if I had some spare cash, I think now is a rare opportunity to purchase undervalued UK shares. And by holding these stocks for the long run, I’m confident I could generate healthy returns.
I’ve been adding FTSE 100 shares to my portfolio in recent times. In the weeks ahead, I’ll be looking to add some more.
