All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
How to invest in FTSE 250
The FTSE 250 is a collection of the largest companies on the London Stock Exchange including Wetherspoon, Cineworld and Tui.
If you’re building an investment portfolio focused on future growth then it’s worth considering whether to invest in the FTSE 250. It’s an index of UK medium-sized companies and its growth has massively outstripped the FTSE 100 over the last 20 years.
In this guide, we explain everything you need to know about the FTSE 250. We answer common questions like “why invest in FTSE 250 stocks?” and “what are the pros and cons of investing in the FTSE 250?”.
What is the FTSE 250?
The FTSE 250 is a share index for medium-sized UK companies. It’s calculated by working out the market value of all the companies listed on the London Stock Exchange.
The first to the 100th largest UK companies are included in the FTSE 100 and the 101st to the 350th largest UK companies are included in the FTSE 250.
How to invest in the FTSE 250
You have several choices if you want to invest in the FTSE 250. Here are some of your options:
- Open a pension fund and invest in an FTSE 250 fund within your pension. You won’t be able to access your money until you’re 55 at the earliest, but you will get your investments topped up by government tax relief.
- Use a stocks and shares ISA. You won’t need to pay tax on any capital growth on shares or funds held within your ISA.
- Invest using a trading platform trading account. You may need to pay tax on any capital growth, but you will get a tax-free allowance of £12,300 per year.
Once you’ve picked the type of platform (pension, ISA or trading platform) to invest in the FTSE 250, you will need to choose whether to invest in an FTSE 250 fund or invest in individual shares. Funds can be a simpler option for new investors as your investment will be spread across several companies and you won’t need to pick which individual shares to buy.
Why invest in FTSE 250 stocks?
If you’re building a balanced investment portfolio, you should consider including FTSE 250 stocks. That’s because the FTSE 250 contains smaller companies than the FTSE 100 and smaller companies often have the potential to grow more in the future.
The FTSE 100 is dominated by commodities, financial service companies and well-known consumer names. Many of these companies focus on paying dividends to investors rather than reinvesting profits in the business. It can mean they are focused on maintaining their market value rather than future growth.
How do FTSE 250 stocks perform?
The FTSE 250 has grown an average of 11.3% each year over the past decade, but this fluctuates from year to year. For example, the index grew 25.03% in 2019 but dropped by 6.16% in 2020 due to the COVID-19 crisis.
You can use the chart below to track the performance of the FTSE 250:
Which companies are listed on the FTSE 250?
The FTSE 250 includes some well-known household names such as Aston Martin, Marks and Spencer, Dr. Martens and Virgin Money. The FTSE 250 companies are reviewed regularly and may change over time. That’s because companies in the FTSE 250 might increase in market value and move into the FTSE 100 or reduce in value and drop out of the FTSE 250.
List of FTSE 250 companies
Choosing which FTSE 250 shares you want to buy
Because it’s difficult to pick shares with the best growth potential, many investors choose index tracker funds that invest in all the shares in an index. However, if you do want to pick a few individual stocks, then here are some investment tips:
- Invest in a growth sector – some of the fastest growing stocks in the world are currently technology stocks like Meta and Apple.
- Look at the financial accounts of companies and work out their p/e (price/earnings) ratio. It’s a measure experts use to show if the company is potentially good value for money. It’s calculated by dividing the price of the shares by the earnings per share (profit divided by the number of shares issued). You can compare several companies and pick one with the best p/e ratio.
- Follow the business news. Even if a company has a great p/e ratio and operates in a growth sector, there may be another reason a company has a low share price such as bad news about the company.
- Diversify your portfolio. Try to spread your investments between many companies, even if you invest in individual shares.
- Don’t invest money you can’t afford to lose. You don’t want to have to sell your shares really cheaply if there’s a stock market crash.
Best performing FTSE 250 funds
Even though ETFs are considered lower risk investments, you need to remember that all investments rise and fall over time. Before you invest, it’s important to look at historical performance.
Here are some of the best performing FTSE 250 funds according to justETF:
| Icon | Fund | 5-year performance (to February 2024) | 1-year performance (to February 2024) | Link to invest |
|---|---|---|---|---|
 | Vanguard FTSE 250 UCITS ETF Distributing (VMID) | 15.50% | -0.37% | Invest with XTBCapital at risk |
 | Invesco FTSE 250 UCITS ETF (S250) | 14.69% | -0.68% | Invest with Hargreaves LansdownCapital at risk |
 | Xtrackers FTSE 250 UCITS ETF 1D (XMCX) | 14.21% | -0.93% | Invest with XTBCapital at risk |
 | iShares FTSE 250 UCITS ETF (MIDD) | 13.46% | -0.89% | Invest with eToroCapital at risk |
 | HSBC FTSE 250 UCITS ETF GBP (HMCX) | 13.00% | -1.29% | Invest with XTBCapital at risk |
Can I trade in FTSE 250 stocks in the UK?
If you are a confident investor and don’t mind taking on some risk, it is possible to trade in individual stocks within the FTSE 250. However, most investors treat the FTSE 250 as a long-term investment rather than doing share trading.
How much does it cost to invest in FTSE 250 stocks?
The cost of investing in FTSE 250 stocks depends on your investment provider and type of investment. Common types of fees include the following:
- Annual or monthly fees: These are charged by most pension companies, ISA providers and trading platforms. They can be a percentage of your total pension fund or a flat monthly fee and range from 0.35% per year to 1% per year.
- Fund fees: Pension companies and ISA providers also charge fees for individual funds based on the total amount invested in that fund. Index funds tend to be low cost and start at around 0.15% of the fund value per year.
- Trading fees: Most trading platforms charge a cost per trade of between £3 and £8.
Example: Investing in FTSE 250 stocks
In 2001, Sarah invested £10,000 in a FTSE 100 index tracker fund and £10,000 in a FTSE 250 tracker fund. She checked her investments in February 2021 (20 years later). Her FTSE 100 fund was worth £20,994 (growth of 109.9%) and her FTSE 250 fund was worth £52,070 (growth of 420.7%).
* This is a fictional, but realistic, example.
What to keep in mind when trading FTSE 250 stocks
If you choose to invest in a FTSE 250 index fund, you will have the choice of whether to reinvest or withdraw your dividend income as cash. This choice can make a big difference over time to your investment growth. That’s because the FTSE 250 returned an average of 13% from 2010 to 2019 growth per year for investors who reinvested their dividends, but only 10% per year over the same period for investors who withdrew their dividend income.
Should I only invest in the FTSE 250?
Finder expert Zoe Stabler answers
When it comes to investing, it pays to not put all your eggs in one basket. That’s why investing in the FTSE 250 as well as the FTSE 100 can be a great idea. It means your investments will be spread across medium-sized and larger companies. Medium-sized companies often have a bigger potential for growth and returns on the FTSE 250 have been impressive in the last 20 years.
Pros and cons
Here are some pros and cons of investing in the FTSE 250 compared with the FTSE 100:
Pros
- Bigger growth potential than FTSE 100 companies because smaller companies often outperform the share price growth of larger companies.
- Higher historic growth than the FTSE 100. Of course, past returns are not a guarantee of future growth.
- Companies that form part of the FTSE 250 are more UK focused. Just 24% of the FTSE 100’s sales are domestic compared with 51% of the FTSE 250.
Cons
- Higher risk of the FTSE 250 dropping in value as the share price of smaller companies tends to fluctuate more.
- Less exposure to non-UK stocks could be a disadvantage if the UK economy does badly.
- Lower dividend payouts than FTSE 100 stocks. This could be a disadvantage if you’re investing to receive an income rather than for long-term growth.
Compare FTSE 100 and FTSE 250 in more detail
Bottom line
Building a well-diversified investment portfolio, that’s invested in larger, medium and smaller companies, is the holy grail for investors. That’s why many investors choose to invest in the FTSE 250, the UK’s share index for medium-sized companies. The FTSE 250 has historically grown at a faster rate than the FTSE 100, averaging growth of 11.3% per year over the past decade compared to 6.7% for the FTSE 100.
Some platforms that let you buy FTSE 250 stocks
Most UK trading platforms and investment providers will let you buy FTSE 250 stocks. Take a look at some of your options for an investment provider.
Table: sorted by promoted deals first
Frequently asked questions
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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