New ISA Money in 2026: The FTSE 100 Pays 3.1% at 16x Earnings. The S&P 500 Pays 1.1% at 26x.

Start with the raw gap. The S&P 500's trailing price-to-earnings ratio stood at 26.16 on 11 September, against a long-run average near 16. The FTSE 100 trades at about 16 times trailing earnings today, based on Yahoo Finance constituent data. America is priced for perfection; Britain is not.

Over the twelve months to September, both indices delivered a similar price gain — the FTSE rose 13.9% and the S&P 14.5% in dollar terms. Add dividends and the currency, and the picture tilts decisively. The FTSE's 3.1% yield pushed a UK investor's total return to roughly 17% in sterling, while a stronger pound — up from $1.32 to $1.35 — shaved the S&P's total return back to about 12% for someone spending pounds.

The chart shows how closely the two tracked each other. That is the point. If the returns are similar over a year, the investor who paid 16 times earnings took far less risk than the one who paid 26 times.

What the multiple really tells you is the market's assumed growth rate. At 26 times earnings, the S&P 500 is pricing in years of double-digit profit growth; at 16 times, the FTSE 100 only has to avoid shrinking. You do not need Britain to boom to make money at 16 times earnings. You need America to keep beating already-high expectations at 26 times.

A 3.1% yield is not just a number; it is the difference between a portfolio that pays you while you wait and one that demands perfect timing. The S&P 500 yields 1.06% — a near-record low, far below its long-run average of 4.2%. The FTSE 100's 3.1% is nearly three times that.

Income changes behaviour. When a market falls 20%, the investor holding a 3.1%-yielding index gets paid to stay. The investor holding a 1% yielder has to sell at the bottom to meet a bill. This is why dividend yield tells you more than a headline about what you are actually being compensated for.

The FTSE's yield is not a mirage. Banks, energy and insurers — three of its heaviest sectors — are generating the cash to pay it. Shell yields about 3.3% and HSBC about 3.6%. That income is the margin of safety.

The power of the yield shows up in a flat market. If neither index moves for five years, the FTSE investor collects roughly 15% of income and the S&P investor about 5%. Reinvested, that income buys more shares at the same prices and sets up the next five years.

Buying the S&P 500 means buying dollars. That is fine in the long run, but it is a risk you are paid nothing to take right now. Over the past twelve months sterling rose 2.8% against the dollar, from $1.32 to $1.35. Every 1% move in the pound moves your US holding's value 1% the other way — before any price or dividend change.

The FTSE 100 removes that variable. You earn in pounds, you spend in pounds, and the companies you own — even the internationally-flavoured ones — report and pay in sterling. When the Bank of England sets a base rate of 3.75%, you can weigh equities against gilts and cash in one currency, with no translation step.

There is a second, quieter cost to buying dollars that never appears on the dealing ticket. Either you accept the currency swing or you pay a fund manager to hedge it away — and hedged share classes charge an extra fee for the privilege. The FTSE 100 requires neither decision.

Currency is not a reason to avoid America forever. It is a reason to be paid for taking the risk — and at a 1.06% yield, you are not being paid.

The Bank of England has cut the base rate from 4.25% in May 2025 to 3.75% today. If cuts resume after the September meeting, the income from a FTSE 100 tracker keeps its edge over cash in relative terms — cash rates fall with the base rate, while a diversified dividend stream has historically kept paying.

Dividends inside a stocks and shares ISA are tax-free. Interest on cash outside an ISA is not, once your personal savings allowance is used. The gap between what you earn and what you keep widens with every cut.

A savings account advertising 4% today can be advertising 3% within a year. The FTSE's 3.1% is not a promise either — but it has been a much stickier one.

The S&P 500's 26-times multiple is a bet that the AI boom keeps compounding. The top of the index is now a handful of technology companies whose fortunes rest on one theme. When OpenAI says it will not IPO in 2026 because of safety concerns, the market shrugs — until it does not.

This is the ‘what could go wrong’ question I always ask. A 26-times multiple leaves no margin for a growth wobble, a regulatory crackdown or a currency reversal. The FCA's guidance on risk and diversification is blunt: understand what you own and why. Paying a 60% premium for the privilege of concentration is the opposite of diversification.

Concentration makes the problem worse. A handful of technology names now carry a weight the index has not seen before, so the 26-times multiple is really a multiple on a narrow earnings base. Diversification does not remove risk, but it spreads it. Paying top dollar to concentrate it is paying for risk twice.

None of this means America is doomed. It means the price already assumes everything goes right, and I prefer to be paid for what could go wrong. If you want to size volatility properly, beta and volatility are the measures to know first.

Critics call the FTSE 100 a museum of banks, oil majors and tobacco. I call it a machine that mails you cash. Banks, energy and basic resources account for roughly half the index's market capitalisation — and those are exactly the sectors throwing off the 3.1% yield.

Yes, the FTSE lacks big technology. But you do not need your whole portfolio in technology; you need an income backbone plus growth elsewhere. The FTSE 100 gives you the backbone. Its record close of 10,910 on 27 February and an intraday high of 10,989 in July show a market that has been climbing while paying you to hold it.

The income engine is also a total-return engine over time. Dividends have been a large share of the FTSE 100's long-run return precisely because the index does not grow its earnings as fast as America. What it lacks in growth it makes up in cash. That trade suits a specific investor: someone who wants the market to pay them while they wait, rather than someone betting on a ten-year growth story.

If you want growth on top, add it deliberately — through a global or US tracker in a controlled slice — rather than betting the whole ISA on 26-times earnings. That is the difference between a conviction and a gamble.

Here is the working version. You can put up to £20,000 into an ISA in 2026/27. I would not put all of it in the FTSE 100 — I would put the core of it there and hold the rest in reserve.

Start with a FTSE 100 tracker inside a stocks and shares ISA. Understand what you are buying first: how to read a P/E ratio and what dividend yield really tells you. Then leave it alone.

If the American argument keeps you awake at night, buy a global index fund or ETF that already includes the S&P 500 at whatever weight the market decides. You get the growth exposure without making a 26-times multiple the single biggest decision in your portfolio.

The order of operations matters more than the exact split. Fill the ISA before the taxable account, use a tracker before an active fund, and reinvest the dividends before you spend them. Every one of those choices compounds. The index you pick is the last decision, not the first. Browse our investing hub and the ISA hub for the full map before you commit.