A 110-Year Buy Signal

Published in Investing Strategy on 12 February 2010

Over a century of evidence points to better times ahead.

Despite the recovery that the stock market has staged in the last year, we are living in extraordinary times. Still. And that, in short, is the fundamental message in the latest annual Barclays Equity Gilt study, which has been published continuously since 1956.

Tracking asset returns since 1899, the study has repeatedly confirmed that shares outperform cash, corporate bonds and government gilts -- many, many times over.

With dividends reinvested, £100 invested in equities in 1945 would be worth £119,238 today. £100 in cash would have grown to £6,133, while £100 of gilts would have produced £5,087.

Over the entire period since 1899, the outperformance is even more striking. £100 invested in equities would be worth £1,486,860 -- while £100 gilts would be worth £23,688, just ahead of the £20,026 return from cash.

The lost decade reprised

Last year's Equity Gilt study coined the phrase 'the lost decade'. And it's a measure of the esteem in which the Barclays study is held that the phrase quickly became common parlance.

The reason? The 1998-2008 return from UK equities was just 1.05%. 

Over the entire period covered by the 2009 study, only the decade ending in 1974 saw a weaker 10‑year return -- and then only marginally so, with the 1964‑74 period delivering a paltry 1.02%. And that's in nominal terms: inflation adjusted, the real return was negative, at -1.5%.

And despite the steep recovery the markets have experience since March 2009, the lost decade persists. Dropping 1998 from the frame and adding 2009 improves the real return from equities over the past ten years from -1.5% to -1.2%. 

Gilts, on the other hand, have yielded a real return of 2.6% over the past ten years, while corporate bonds delivered 2.9%. Even cash in the building society would have produced 1.8% in real terms.

And here's the real shocker. Over a 20 year period, while equities have delivered a -- reassuringly once more positive -- return of 4.6%, gilts returned 5.4%. Cripes. Gilts have outperformed equities. As last year's study noted, this is exceptional -- and you have to go back to 1930s to see anything comparable.

Remember, too, that we're talking overall returns, with dividends reinvested. This isn't solely a phenomenon caused by comparing the dotcom stock market highs of 1999 with the 2009 recessionary slump.

Gilts will suffer

But going forward, continued gilt outperformance looks most unlikely.

Pointing to factors as diverse as increasing macro‑economic volatility, changing demographics, worsening government finances and shifts in global savings trends, the Barclays authors reckon that gilt yields must rise -- and sharply, too. Which, given gilts' fixed interest nature, means that gilt prices must fall.

"Although the outlook for equity returns is not exactly inspiring -- particularly over the next half decade -- it is a good deal better than the prospects for bond markets," notes the study. "Long-term government yields in both the US and UK are set to more than double from current levels over the next decade, moving up to around 10% by 2020. Under such circumstances, total returns from government bonds are likely to be negligible over the next decade."

In other words, while equities will struggle in the short term, the report for 2020, in ten years time, should make for happier reading.

But just how happy?

We're not going to see ten years of euphoric growth, that's for sure. A cyclically-adjusted P/E model, overlaid with demographic projections, suggests to Barclays that a cyclical de-rating is underway, and has been for some time.

While the good news is that around two-thirds of the de-rating has already happened, the bad news is that equity returns will be continue to be somewhat depressed. Nominal equity returns can be expected to be somewhat below the long run historical average of 11% that the UK stock market has delivered -- and well below the 15‑16% returns seen during the halcyon 1982‑2000 period.

However, says Barclays, "assuming a normal trend for profits, equity returns over the next decade should still be positive." So a better decade than the last one, then.

And the odds look pretty good

As usual, the Barclays study contains a table highlighting the number of times that equities outperformed cash and gilts over different periods of time. It's a table of which I'm very fond, and which bears careful study.

Equity performance2 years3 years4 years5 years10 years18 years
Outperform cash727578799292
Underperform cash3733292791
Total number of years10910810710610193
Equities outperformed cash66%69%73%75%91%99%
Outperform gilts758182828183
Underperform gilts342725262010
Total number of years10910810710610193
Equities outperformed gilts69%75%77%75%80%89%

Source: Barclays Capital

The first column shows that over a holding period of two years, equities outperformed cash in 72 out of 109 periods, 66% of the time. Extending the holding period out to 10 years, the probability that equities outperformed rises to 91%. For 18 years -- almost two decades -- the probability rises to 99%.

Of course, there is no guarantee that because we have seen these patterns for the last century or so, they will hold going forward. But it is clear that the past ten years or so have been quite extraordinary, and if history does assert itself, the next ten shouldn't be anything like as bad for equity investors.

And if that's not a 'buy' signal, what is?

More from Malcolm Wheatley:

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

BarrenFluffit 12 Feb 2010 , 5:17pm

If gilt yields double presumably annuity rates would follow a similar path. This would have a major impact on company pension funds.
Its also interesting how slowly longer holding periods reduce equity risk.

liesarenocomfort 13 Feb 2010 , 10:37am


"...£100 invested in equities in 1945 would be worth £1,486,860 today"

Which equities?

£100 in Woolworth shares?

Do you mean "Had there been such a thing as an index tracker in 1945, it would now be worth...."?


CGDaveS 13 Feb 2010 , 10:43am

I would take issue with them describing the %ages in the table as "Probability of equity outperforming cash"

All the figures are the experience to date. As we know, past performance is not necessarily a guide to future.

There have been 9 "lost decades" when equities failed to outperform cash.

Is it really 91% probable that 2010-2020 won´t be another one?

I´ve not seen the latest study but last year Barcap´s figures showed a move on the 10 year average relative performance from positive 6.9%pa to negative 1.5% between 2006 and 2008 despite 8 years being the same.

The FSA back in 2001 thought that it was important for consumers to have an appreciation of the fact that in the long-term, equities have consistently out-performed deposits.

http://www.fsa.gov.uk/pubs/other/Past_Performance_Report.pdf

But consistently is not the same as always.

Not sure that this is as certain a buy signal as you may like to think.

UncleEbenezer 13 Feb 2010 , 11:47am

I don't see a buy signal

... except ...

for the certainty of losing if I keep money in cash sterling :(

Terrapin1 13 Feb 2010 , 12:51pm

If only.......

TMFTigger 14 Feb 2010 , 10:59am

Hi CGDaveS

Yep, probability may not be the best word to use there. I have tweaked the text accordingly.

Cheers

Stuart (Foolish editor chappie)

bhoddisattva 15 Feb 2010 , 12:06pm

I know it's frowned upon to say "but this time is different" or "new paradigm" but I wonder whether the last 100 years was also the last period where the West was dominant in commerce?

And hence, this past performance is NOT a guide to a new period where the East, (China esp. if not BRIC) become so dominant that a new world order is forming in which UK stocks on the UK market become increasingly irrelevant.

Heresy I know, and I shall now go and self-flagellate ..

MDW1954 15 Feb 2010 , 12:12pm

Probability of equity outperformance is Barclays' phraseology, not mine.

Malcolm (Foolish author chappie)

countingcrow 15 Feb 2010 , 12:19pm

Malcolm,

I'm one of the unfortunate people who began investing in equities in 1998, and I will continue into the future because I believe the mantra that equity returns will trash cash...in the end.

But, it's never really occurred to me before to question how the returns on cash are calculated. I presume this is not the return you would expect by sticking the money in a low return savings account, but how is it calculated?

frances111 15 Feb 2010 , 12:20pm

I would like to know what £100 in 1945 would be now, adjusted for inflation. £100 would have been a great deal of money, not an amount most people could possibly have afforded to invest in anything. Even truer of 1899, of course - more than many people would have earned in a year. So on that basis these returns do not look so great, and of course no one lives long enough to invest over such periods. Had you had the £100 to invest in 1945/1899 you would have wanted to draw on it long ago...

Fingered 15 Feb 2010 , 12:37pm

..........and if you had invested £100 12years ago in the FTSE, you would have £100 so have lost money and been better off putting it a bank. and in the long term........you are dead. According to this distorted 110 year misplaced analysis, I guess it was equally a "buy" signal at all the previous market peaks. Joke.

Intercooler 15 Feb 2010 , 1:07pm

This article is restircted in that it considers the historic backdrop to be appropriate for the future. The past hundred years will diff from the next due to the West - East/(BRIC) Economic transfer that has been gathering momentum for a number fo years now.

I would be interested to see if the Barclays analysis generates the same results for post war Japan. Which has been generating dissapointing returns since the 80's.

Will the 2010 onwards UK market returns be more like those of Japan from 80's to now. Maybe the Japanese market was starting from a severely overcoocked level but still its had long enoungh to stabalise. And start returning across multiple years.

My point the past has a canvas that is now fundamentally structurally different to the future therefore the stats can'tnow be seen as a buy signal.

Intercooler 15 Feb 2010 , 1:08pm

This article is restircted in that it considers the historic backdrop to be appropriate for the future. The past hundred years will diff from the next due to the West - East/(BRIC) Economic transfer that has been gathering momentum for a number fo years now.

I would be interested to see if the Barclays analysis generates the same results for post war Japan. Which has been generating dissapointing returns since the 80's.

Will the 2010 onwards UK market returns be more like those of Japan from 80's to now. Maybe the Japanese market was starting from a severely overcoocked level but still its had long enoungh to stabalise. And start returning across multiple years.

My point the past has a canvas that is now fundamentally structurally different to the future therefore the stats can't now be seen as a buy signal.

JOHORA 15 Feb 2010 , 1:11pm

All very interesting but something that really niggles me is how writers positively position the market retrospectively.
Let me explain what I mean by this. Say - if one had - £100,000 eleven months ago and invested in the market, it is very likely that you would have benefited from the positive sides of investing. On the other hand if you happened to invest twelve months ago you’d unfortunately be where most of us are!
I ticks me off when reports begin with how much the market has gained since March '09 as if one might have cherry picked one's timing as a virgin investor.
That's not the way people begin investing and mores’ the pity.
Have a good week!
JOH.

wpannuitant 15 Feb 2010 , 2:09pm

Talk of 10% on gilts? Who would want to go into equities? With long term gilts you can lock in for life. The worst thing one could do after reading this is to say OK they must be right and invest the lot right now.

Johnpope1 15 Feb 2010 , 2:13pm

It's not too difficult to work out what £ !00 would have been worth in the past. Just think of a few important staple commodities or necessaries, ( or even pay-rates) in the past. . Beer, depending on quality, was was about 1/4 a pint in 1955, A hundred sovereigns in 1910 - 100 years ago would, at todays gold prices be worth £ 17,400. That's what a run of government depreciation of the currency has done to the 'Pound in your pocket', Harold Wilson's phrase when lying that devaluation did not affect the value of the pound. 'Quantitative Easing' a euphemism for printing paper pretending it was real money will be affecting us all for years to come. Those with savings will be the hardest hit

tyronesingh 15 Feb 2010 , 2:15pm

I would like some of what your smoking since alot has gone up in smoke recently. I don't think the same strategy of reporting the markets by Barclays works any more, the whole of the financial landscape has changed over the years. The landscape has so many factors now, with so many ways to trade the market. The market now is full of ups and downs and you have to ride with it. To just sit back and take a direction is no longer an option in any type of investment now days. Be proactive and don't sit back.

LiberalThug 15 Feb 2010 , 3:06pm

I'm not quite sure why you credit the phrase 'Lost Decade' to the Barclay's report - this term originally comes from the early 90's depression in Japan...

http://en.wikipedia.org/wiki/Lost_Decade_(Japan)

selimap 15 Feb 2010 , 3:26pm

liesarenocomfort is absolutely right, this is the big lie that those who make money from investors (like TMF) use all the time. If you invested £100 in equities in 1899, the shares wouldn't be worth anything. In fact, they wouldn't exist as virtually all companies existing then have failed been taken over.

crabbydave 15 Feb 2010 , 7:36pm

A more interesting and useful analysis would show 10 and 20 year returns period by period over that time frame. ie what return 1899 - 1908, 1909 - 1918 etc.

People's investment horizon's are typically 10 - 20 years, with a few going to 30 or 40.

Also how is such a return calculated? Its not possible for your average investor to hold all components of the major indices, so needs an index Tracker or ETF or similar.

Also, as most people invest in small regular amounts knowing how small regular investments fare would be valuable.

Also, given that small investors are at the mercy of fund managers,. how much would anyone actually be left with once commissions, charges and slippages are taken into account?

Such a study is interesting but not sure how much it really helps.

Also, how can we assume we are about to take off again? The bear period priori to the 1982 bull lasted almost 20 years - why should this one not be the same? Another 10 years of 'lost decade' is quite possible. After all, what will the engine of growth be in this country? We cannot have another housing boom, financial services are going to be restrained. No signs of a manufacturing boom based on devalued pound. I can see no engine of growth, and neither can anyone else as far as I can see.

The market looks like a vast 10 year double top, maybe we are about to experience sub-prime 2 (as FT suggests) and we are headed to the final down leg before depression. We have only lost 50% of the original top, then recovered 50% of that fall (much like the Dow in 1929/30). We could be building for the final collapse to a 90% loss, and almost certainly will if Sub-prime 2 strikes.

We live in dangerous times, and people need to be watchful.

UpHillAllTheWay 15 Feb 2010 , 9:58pm

"£100 invested in equities in 1945 would be worth..."

My Dad died just before the millenium, and when going through his papers, I saw that in 1948, he was earning £5/10s per week, and with that, he was buying a house and a car, and raising three children of 15, 9 and 2 years old.

Yes, it looks fantastic that £100 would have become £119K, but the units are all wrong. Don't talk in Pounds - use the loaf of bread as a currency, and although the increase will still be impressive, it won't be as impressive as it seems in Pounds.

bouleversee 15 Feb 2010 , 11:51pm

Absolutely meaningless; depends which shares. I have had so many companies go bust on me or be taken over for peanuts and very few successes and I would definitely have done better if I had followed my sister's example and left the money in cash deposits. So much depends on when you have cash to invest. I am still losing on Glaxo, for heavens sake, and lost my shirt on GEC/Marconi, Polly Peck, British & Commonwealth, Anglo Irish Bank and countless others, even 2 funds, one of which was run by the famous Jim Slater. Just had a letter from the Administrators saying that Litho Supplies has gone under; another £9k down the tubes. And I am losing quite a bit on Barclays themselves, not to mention Lloyds. I doubt if I have another decade left. Property is the only investment worth having and if you have to rent it out, that is a hassle. Just wish I had spent more and saved less.

steveunsworth 16 Feb 2010 , 11:44am

Not original but 'the one thing you learn from history is that you cannot learn from history' (re: stock markets - I don't think the same is always true for politics, where the motto should be 'the one thing you learn from history is that politicians never learn from history' (re Iraq/Afghanistan etc))

gulliblejack 16 Feb 2010 , 5:42pm

UpHillAllTheWay
Your investing experience is similar to mine. Seeking to make some sense out of investing and value I agree with you on the 'loaf of bread' currency, which I recommend Motley Fool to adopt. In 'man in the street' terms I tend to put it another way: "How long do you have to work to buy a loaf of bread?" Perhaps the nearest we can get to a reasonable (existing) standard of value would be the Retail Price Index. How would that work out comparing 1945 etc with today? I suspect it would be distorted by the basket of goods used to define it changing over the years. A loaf of bread, though, should remain constant when correctly standardised. How about it, Motley? For Investment comparison purposes, what would be the equivalent of a loaf of bread? Can we identify a true standard to judge value by?

gulliblejack 16 Feb 2010 , 5:44pm

ing experience is similar to bouleversee's, not UpHillAllTheWay's.

gulliblejack 16 Feb 2010 , 5:45pm

Sorry again - typo. Try again. My investing experience is similar to bouleversee's, not UpHillAllTheWay's.

theclockman 16 Feb 2010 , 9:47pm

I think the analysis is about as useful as "if you had invested in a loaf of bread in 1898 it would be worth lots of money today". The biggest shares of the early 20th century were the railways! You can make money if you are lucky, or possibly if you have the ability to read the market well. The other way is if you can buy and sell for other people and just make money on the transactions - like Barclay's. Japan is a big lesson to us - huge government spending, huge savings, brilliant companies - Sony, Matsushita, Toyota - so why no stock market growth?

RockderktheGreat 18 Feb 2010 , 2:43am

The sun shone and yea did they harvest upon the shining fields all that day until the the dark came down and it was gone and there was no more. And then the sun shone again and one fool hath spake "Behold,it's a 110 year buy signal".

johnduncaninnes 19 Feb 2010 , 8:12pm

1 RPI ffor last 200+years id available from Bank of England website (as are interest rates

2 Annual Returns for last 200 years on FTSE are available in the table below

1800-2007
Date High Low Close
12/31/1800 19.91 18.24 18.90
12/31/1801 20.98 17.47 20.98
12/31/1802 22.28 20.01 21.26
12/31/1803 21.25 15.94 16.60
12/31/1804 18.31 16.78 18.31
12/31/1805 19.86 18.15 19.86
12/31/1806 20.86 19.42 20.00
12/31/1807 21.41 20.37 20.69
12/31/1808 22.14 20.56 21.67
12/31/1809 24.01 21.90 23.91
12/31/1810 23.46 21.71 21.71
12/31/1811 21.38 18.54 18.54
12/31/1812 19.09 17.15 17.15
12/31/1813 17.35 16.88 17.12
12/31/1814 18.48 17.44 17.52
12/31/1815 17.58 15.75 16.42
12/31/1816 16.23 13.93 14.43
12/31/1817 19.13 14.27 19.13
12/31/1818 20.19 19.25 20.19
12/31/1819 20.13 18.52 18.52
12/31/1820 19.11 18.34 19.11
12/31/1821 19.98 18.81 19.98
12/31/1822 21.86 20.05 21.86
12/31/1823 23.88 21.07 23.88
12/31/1824 45.53 24.63 45.53
12/31/1825 77.76 35.17 35.17
12/31/1826 35.79 23.88 28.10
12/31/1827 29.41 23.70 29.41
12/31/1828 28.43 25.14 25.14
12/31/1829 25.97 22.46 25.97
12/31/1830 26.37 22.13 22.13
12/31/1831 21.36 18.29 18.65
12/31/1832 19.06 17.96 19.06
12/31/1833 22.40 19.09 22.21
12/31/1834 22.47 19.46 20.13
12/31/1835 21.13 19.00 21.13
12/31/1836 25.68 21.69 22.23
12/31/1837 22.49 19.48 20.34
12/31/1838 21.88 19.42 19.61
12/31/1839 19.69 17.12 17.12
12/31/1840 19.21 17.33 17.65
12/31/1841 17.77 15.33 15.94
12/31/1842 17.17 16.23 17.08
12/31/1843 19.17 17.38 19.17
12/31/1844 22.34 19.88 22.34
12/31/1845 25.38 21.88 21.88
12/31/1846 23.36 21.50 21.50
12/31/1847 21.55 18.52 18.52
12/31/1848 18.79 15.43 16.02
12/31/1849 17.37 14.46 14.85
12/31/1850 16.98 15.16 16.98
12/31/1851 17.05 16.67 16.95
12/31/1852 18.58 16.83 18.58
12/31/1853 18.82 17.31 17.31
12/31/1854 17.03 15.95 16.74
12/31/1855 16.92 16.12 16.18
12/31/1856 17.17 16.17 17.05
12/31/1857 17.68 15.90 16.05
12/31/1858 17.10 16.45 17.10
12/31/1859 17.08 16.24 16.76
12/31/1860 18.62 16.20 18.62
12/31/1861 19.20 18.05 19.20
12/31/1862 22.39 19.58 22.39
12/31/1863 25.99 22.31 25.26
12/31/1864 26.54 24.14 26.54
12/31/1865 27.90 26.12 26.92
12/31/1866 26.36 20.37 20.89
12/31/1867 22.22 20.43 20.43
12/31/1868 21.82 20.66 21.82
12/31/1869 23.44 21.87 23.44
12/31/1870 25.60 24.03 25.44
12/31/1871 30.25 26.01 30.25
12/31/1872 31.97 31.10 31.45
12/31/1873 33.00 32.05 32.59
12/31/1874 32.69 30.89 30.89
12/31/1875 30.79 28.45 28.45
12/31/1876 28.89 27.16 27.75
12/31/1877 27.60 25.08 25.08
12/31/1878 25.16 22.33 22.33
12/31/1879 25.03 21.10 25.03
12/31/1880 27.52 25.60 26.26
12/31/1881 27.09 25.44 26.11
12/31/1882 26.34 24.46 24.46
12/31/1883 24.82 23.15 23.23
12/31/1884 23.15 22.18 22.74
12/31/1885 23.03 21.87 22.79
12/31/1886 23.08 22.31 22.92
12/31/1887 22.90 21.07 22.10
12/31/1888 23.39 21.90 23.39
12/31/1889 26.93 23.85 26.44
12/31/1890 26.80 24.80 24.80
12/31/1891 25.44 24.75 24.98
12/31/1892 25.03 24.52 24.95
12/31/1893 25.36 24.77 25.36
12/31/1894 26.88 25.44 26.88
12/31/1895 30.20 27.19 29.89
12/31/1896 36.47 30.86 36.47
12/31/1897 38.75 37.47 38.37
12/31/1898 39.09 37.34 38.50
12/31/1899 39.60 37.73 37.73
12/31/1900 40.25 37.39 37.39
12/31/1901 37.37 35.44 35.54
12/31/1902 36.73 34.95 35.08
12/31/1903 36.31 33.13 33.13
12/31/1904 33.95 32.56 33.95
12/31/1905 36.08 34.21 36.06
12/31/1906 36.34 34.93 35.90
12/31/1907 36.34 30.06 30.61
12/31/1908 33.20 30.58 33.10
12/31/1909 35.55 32.51 34.68
12/31/1910 35.25 33.81 33.81
12/31/1911 35.18 33.04 33.92
12/31/1912 34.89 33.57 33.62
12/31/1913 33.79 31.37 31.37
12/31/1914 32.52 29.21 29.21
12/31/1915 28.83 26.67 27.72
12/31/1916 28.82 27.38 27.87
12/31/1917 27.74 24.93 24.93
12/31/1918 27.95 24.90 27.66
12/31/1919 28.37 27.15 28.34
12/31/1920 29.16 24.58 24.58
12/31/1921 24.62 22.98 23.25
12/31/1922 28.13 23.55 27.34
12/31/1923 29.94 27.87 27.89
12/31/1924 30.54 28.13 30.54
12/31/1925 31.89 29.89 31.89
12/31/1926 32.85 30.97 32.66
12/31/1927 35.35 33.33 35.35
12/31/1928 38.36 35.54 38.21
12/31/1929 39.80 35.38 35.40
12/31/1930 35.59 28.52 28.52
12/31/1931 28.69 21.54 21.83
12/31/1932 23.29 18.99 23.05
12/31/1933 30.30 23.13 29.32
12/31/1934 31.75 29.62 31.75
12/31/1935 34.23 30.04 34.23
12/31/1936 38.97 34.53 38.97
12/31/1937 38.80 31.45 31.45
12/31/1938 31.54 24.79 26.97
12/31/1939 27.51 24.74 27.18
12/31/1940 28.95 18.58 23.65
12/31/1941 29.47 22.98 29.00
12/31/1942 34.39 28.09 34.39
12/31/1943 37.93 35.54 37.16
12/31/1944 41.41 37.55 41.13
12/31/1945 42.32 39.74 40.89
12/31/1946 48.30 41.51 48.30
12/31/1947 49.36 42.19 46.98
12/31/1948 47.13 42.31 45.10
12/31/1949 45.72 36.99 38.84
12/31/1950 42.19 37.78 41.31
12/31/1951 47.19 42.22 42.31
12/31/1952 40.17 35.15 40.17
12/31/1953 46.59 40.04 46.59
12/31/1954 63.85 48.24 62.66
12/31/1955 69.21 60.35 63.65
12/31/1956 62.37 55.00 57.92
12/31/1957 67.77 55.99 55.99
12/31/1958 74.57 51.95 74.57
12/31/1959 106.93 73.17 106.93
12/31/1960 106.37 99.15 101.89
12/31/1961 118.47 96.58 99.32
12/31/1962 102.51 86.87 97.52
12/31/1963 107.86 97.87 107.86
12/31/1964 108.84 97.07 97.07
12/31/1965 105.56 92.89 103.60
12/31/1966 111.20 88.18 93.95
12/31/1967 127.90 93.60 121.18
12/31/1968 173.72 120.85 173.72
12/31/1969 179.58 129.58 147.34
12/31/1970 153.03 114.27 136.26
12/31/1971 193.39 129.47 193.39
12/31/1972 228.18 193.72 218.18
12/31/1973 219.02 134.36 149.76
12/31/1974 150.53 61.92 66.89
12/31/1975 160.63 62.16 158.08
12/31/1976 172.64 116.29 151.96
12/31/1977 226.99 153.70 214.53
12/31/1978 242.30 191.15 220.22
12/31/1979 283.82 218.89 229.79
12/31/1980 313.07 225.06 291.99
12/31/1981 338.64 265.85 313.12
12/31/1982 389.24 306.22 382.22
12/31/1983 470.50 383.25 470.50
12/31/1984 592.94 464.84 592.94
12/31/1985 702.06 581.88 682.94
12/31/1986 835.48 664.42 835.48
12/31/1987 1238.57 784.81 870.22
12/31/1988 978.58 870.19 926.59
12/31/1989 1225.80 921.22 1204.70
12/31/1990 1226.83 962.09 1032.25
12/31/1991 1284.07 987.46 1187.70
12/31/1992 1363.97 1086.13 1363.79
12/31/1993 1698.75 1330.19 1682.17
12/31/1994 1754.48 1448.85 1521.44
12/31/1995 1802.57 1469.23 1802.57
12/31/1996 2013.66 1791.49 2013.66
12/31/1997 2492.41 1989.78 2411.00
12/31/1998 2885.17 2166.07 2673.92
12/31/1999 3242.06 2654.62 3242.06
12/31/2000 3265.95 2852.60 2983.81
12/31/2001 3045.55 2128.10 2523.90
12/31/2002 2580.00 1782.60 1893.70
12/31/2003 2207.40 1593.30 2207.40
12/31/2004 2410.75 2135.40 2412.30
12/31/2005 2,847.02 2,857.97 2,385.71
12/31/2006 3,236.11 2,777.45 3,221.42
08/13/2007 3,490.17 3,102.36 3,219.05

3 Returns on UK are the same as those for the world (US are higher)
Most FTSE value is in the big stocke who are GLOBAL so will cover the BRICS
Thus a TSE100 tracker will be fine as will some shares that are effectively investment fund trackers (eg the Edinburgh one). Either are a lot less risky than trying to pick winners.

4 If shares ALWAYS beat gilts/cash over 20 years and they have just failed to do so for the last decade then in the next decade they should do so.

BUT

5 I think that buying steadily (ie every month or year) is better because you buy more at low prices and less at high thus you do better than a mean average (for the mathematically inclined the harmonic mean is always higher than the arithmetic)

So if beloe 40 start investing evenly now in a tracker

If over 60 forget it you will be dead

Between - I think another dip is likely - if so buy if you can get a yield of 5%

johnduncaninnes 20 Feb 2010 , 8:56am

For those who want statistics both Nominal and Real for GB, US and most major counties access the worksheets on the following website:-

https://www.globalfinancialdata.com/index_tabs.php?action=gfd_research

johnduncaninnes 20 Feb 2010 , 6:27pm

For those who want to know why they don't feel much richer from share investment.

The actual index values of the FTSE All share - currently just over 2760 at end of 2009 has risen 14600% in nominal terms from 1800 (when18.9) but not much in real terms, being 3.25 at end of 2009 versus 1.4 in 1800 a rise of just 232% . This is because of inflation since then (remember you could be drunk for 1 penny and dead drunk for 2, now it costs over £20 for the same amount of gin - when at average inflation it ought to only cost you £1.25).

Sorry I cannot input into this box a graph illustrating this.

So the nominal rise in the FTSE All Shareover 200+ years is only 2.4%pa.
The rest of the gain came from re-investing the dividends (not spending them).

Because dividends often are not a lot of money you do not notice them, and also lose the impact from re-investment.





archibold 08 Mar 2010 , 2:09pm

A more interesting question, is if this has been arbitraged out? That the "truth" that equities outperform gilts has lead to people to overpay for equities. Thus depressing their returns and invalidating the "truth".

Doodlewho 23 Jan 2011 , 7:12pm

sparkyscientist asked: "But, it's never really occurred to me before to question how the returns on cash are calculated. I presume this is not the return you would expect by sticking the money in a low return savings account, but how is it calculated?"

And too many people who quote the study don't know either.

For the last 12 years the study has been based on the Nationwide InvestDirect account which currently pays 0.20% AER. Before that it used the Halifax Liquid Gold account.

The calculations for equities make no allowance for buying costs of unit trust managment charges.

guss123 01 Aug 2011 , 1:25pm

A more practical approach to invest in shares is to adopt a long term optimism in the future, when my deceased father was a boy in a remote
village in the boarder between Portugal and Spain ,my grandpa was a land owner, but each member of the family had only one pair of shoes
had to travel miles riding horses if rich, walking most of them without shoes to buy the most basics, clothing tooth paste, that when they could find, shortages of the most basic things like sugar, coffee and everything else, that was not produced in the village was the normal.
Hot water, central heating in the winter, air conditioning in the summer
not even think about.

Healthcare was unthinkable, only for the ones that could go to
Porto, that was like go around the world nowadays.
Most of people left this village, migrate to cities, many abroad, but
they a much better off now,That the history of even the ones that do not think so.

This is the history of a small place and few families, but I am sure that applies for a good part of humankind in many periods.
Prosperity do not come only from the growth value of our investments,
but from what we can now afford, thanks to technology, infrastructure
and a global world trade.

If you believe this is a long term trend invest in business, shares something productive in this days global market.

If not buy a piece of land in remote Portugal, grab some gold and you can live from what you produce; peaches, grapes(good wine), olive oil
cheese and chickens.

Ah! I almost forgot about cork.

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