So many people look at the performance of the FTSE to decide if they should invest or not, or to see how investments are performing, that it can be quite alarming. While it can be a useful daily measure of activity and general sentiment in the investment world at large, it is a very poor way of measuring how particular investments are performing. This is for three very simple reasons:

The FTSE changes, and changes a great deal.

This year we have seen Barclays, HBOS and RBS come out of the FTSE 100 simply because they are not large enough. They have been replaced by Rio Tinto, BHP Billiton and the BG Group. With the make up of the FTSE changing so much, how can you use it as a benchmark as to performance or, indeed, a barometer of how the markets are doing?

The FTSE only reflects capital growth, not income.

All the shares in the FTSE 100 produce dividends of one form or another. These shares can produce yields of up to 6% or even 8%, but yield is not taken into account in the FTSE figures.

Unless you have a tracker investment, you will not have a FTSE investment!

Most of us will remember the big push that was made by Virgin Money to launch their tracker ISAs and unit trusts, and how they were to be the saviour of the day. Of course, it is always easy to produce products by back testing, but back testing does not look forward, and this is what happened with tracker funds. Their performance has been poor and very few people invest in them now. Even though their charges may be low, these charges are sufficient to reduce the accuracy of the tracking and guarantee them to produce below the index.

Despite all of this, the only investment that the media quotes every day is the FTSE 100. But in the real world this has very little to do with what your investments will produce.