Despite ups and downs throughout the year, 2025 proved to be a great year for the FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange.

According to the Guardian (31 December 2025), the FTSE 100 increased in value by a fifth in 2025, marking the strongest annual gain since 2009. When markets closed on New Year’s Eve 2025, the index was up 21.5% compared to where it was at the start of 2025.

The index got off to a positive start in 2026 as well. The BBC reported (2 January 2026) that the FTSE 100 climbed above 10,000 for the first time when markets reopened in the new year.

So, what investment lessons can you learn from the performance of the FTSE 100?

1. Look beyond the headlines

If you only looked at the headlines of 2025 and tried to predict how markets had performed, you might expect a very different outcome.

The headlines were often sensational and may have led investors to fear that the value of their investments would fall significantly. For instance, when the US introduced trade tariffs and threatened to impose others, this created attention-grabbing headlines that often suggested a negative impact.

Understandably, these headlines may have triggered an emotional response in some investors. However, those who acted on this fear by selling assets may have missed out on potential gains.

While it’s impossible to avoid the news completely, looking beyond the headlines and taking a long-term view may be useful. It could help you focus on your long-term strategy rather than current events that might cause short-term market volatility.

2. Markets typically recover from downturns

It’s important to note that all investments carry some risk, and performance cannot be guaranteed. However, historically, markets have recovered from downturns over the long term.

When you look at the dips the FTSE 100 experienced in 2025, it’s clear that it recovered in the months that followed.

For example, the Guardian reported that the FTSE 100 was down on 7 April 2025 after the US announced it would not consider pausing trade tariffs. While this may have been a cause of concern for some investors, the FTSE 100 made gains in the following weeks as the outlook changed.

If you’re tempted to react to market volatility, remembering that markets have historically recovered from downturns could help you hold your nerve and stick to your long-term investment strategy.

3. Diversification could help manage investment volatility

The performance of the FTSE 100 highlights the value of diversifying your portfolio.

Rather than investing in a few companies, choosing to invest in a wide range of assets, regions, and sectors can help spread investment risk. While one area of your portfolio might fall, other areas may help offset these losses.

Diversification doesn’t remove investment risk, but it could help you manage investment volatility.

The FTSE 100 includes companies working across a broad range of sectors, from mining to advertising. Some of these sectors have experienced significant gains in 2025, which helped balance out losses in others.

While the FTSE 100 is made up of the largest companies listed on the London Stock Exchange, many of them are multinationals.

According to data from LSEG (5 March 2024), more than four-fifths of the sales of the FTSE 100 come from outside the UK. So, even when investing in an index tied to the London Stock Exchange, investments may be more global than you expect.

Investing in companies around the world can help balance your portfolio. For example, if external factors led to the retail sector dipping in the UK, this might be offset by rising sales in other countries.

One way to diversify your portfolio is to invest in a fund. An investment fund pools your money with that of other investors to invest in a wide range of opportunities. So, you can diversify your portfolio without having to make lots of individual investment decisions.

Your financial planner can help you assess which investments, including funds, might be right for you.

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If you’d like to review the performance of your investments or have questions about your investment strategy, please get in touch. We’re here to help you understand how your investments could support your long-term goals.

Please note:

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.