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?”.
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.
You have several choices if you want to invest in the FTSE 250. Here are some of your options:
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.
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.
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.
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.
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:
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:
| Fund | Icon | 5-year performance (to August 2024) | 1-year performance (to August 2024) | Link to invest |
|---|---|---|---|---|
| Invesco FTSE 250 UCITS ETF (S250) |  | 18.99% | 10.17% | Invest with HLCapital at risk |
| HSBC FTSE 250 UCITS ETF GBP (HMCX) |  | 3.85% | 6.59% | Invest with XTBCapital at risk |
| iShares FTSE 250 UCITS ETF (MIDD) |  | 3.81% | 6.82% | Invest with eToroCapital at risk |
| Vanguard FTSE 250 UCITS ETF Distributing (VMID) |  | 3.47% | 6.98% | Invest with XTBCapital at risk |
| Xtrackers FTSE 250 UCITS ETF 1D (XMCX) |  | 1.99% | 5.85% | Invest with XTBCapital at risk |
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.
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.
The cost of investing in FTSE 250 stocks depends on your investment provider and type of investment. Common types of fees include the following:
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.
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.
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.
Here are some pros and cons of investing in the FTSE 250 compared with the FTSE 100:
Compare FTSE 100 and FTSE 250 in more detail
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.
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.
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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Find out the key differences between the FTSE 100 and the Dow Jones.
Find out the key differences between the FTSE 100 and the FTSE 250.
Find out the key differences between the FTSE 100 and the S&P 500.
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In a nutshell, an index fund is a low-cost portfolio of shares and other assets that tracks a financial or stock market index. They’re a popular investment choice in the UK and worldwide.
The FTSE 100 is the UK’s most famous stock index. Here’s how you can invest in it today.