4 reasons to buy FTSE 100 stocks, despite the index hitting 8,000 points

with FTSE 100 Having recently posted the highest all-time fresh, above 8,000 points, it raises the question of whether now is the best time to invest my hard earned money.

Obviously, I’d rather buy cheap FTSE 100 shares, than pay the odds. But even though the index is rising, there are still a few reasons why I’m not against buying stocks right now.

View valuations

The current price-to-earnings ratio of the lead index is 11.45. Ironically, this is one of the lowest rates in recent years. Back in 2019, and for a good part of 2021, the ratio is sitting around 15. Of course, the share price has risen, but the earnings of the company have also increased.

Overall, anything with a ratio of 10 or less is in undervalued territory, in my opinion. So, while 11.45 isn’t cheap, it probably isn’t worth it if I buy it now.

Buy individual names

Even if the index is at a high level, I have to remember that I don’t have to buy the whole index. The performance is a combination of all the constituents and how each one behaves.

When I dig deeper, I can see that there are 10 stocks that have dropped at least 20% in the last year. Of course, I don’t think everything screams to buy now, but there are definitely options that I can see.

The idea of ​​hope

If I assume the economic theory that stock prices reflect all current public information is correct, I can find another good reason to buy now. I think the current sentiment among investors is not that positive. Economic forecasts indicate that the UK will experience negative economic growth this year.

So think about how the stock market could do next year as the economy begins to recover. As more positive data comes in and sentiment improves, the FTSE 100 could move higher.

Enjoy dividend income

Although I think the index will consolidate around 8,000 points and not go higher this year, I can still make a profit. This is through dividend payments. Currently, there are 19 FTSE 100 stocks with dividend yields above 5%. If the dividend per share stays the same this year, that means I will make £50 for every £1,000 invested.

And when I invest regularly every month, this income can quickly start to pile up.

A point to be aware of

One risk is that we get a sharp UK recession this year, leading to a stock market crash. In that case, some stocks will end the year in the black.

I am also aware of the human bias that makes me ignorant (despite the reasons above) to invest at a high level. Therefore, in order to lower the risk, I like to divide the investment over the coming months. Instead of collecting all my free cash today, I can make purchases in the coming week.