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At All Time Highs!

Evidence based investment approach.

The FTSE 100 reached an all-time high in March breaching the 7000 mark, surpassing its previous peak achieved on the eve of the millennium when, fresh from university, I started working in the City of London. This illustrates that it can take a long time for the stock market to recover from a crash like the bursting of the tech bubble. But is it really representative of an investor’s experience since 1999 – have we been treading water for sixteen years? In short, the answer is no.

A more realistic measure of the investment return of UK’s largest listed companies is the total return, which includes the reinvestment of dividends. By that measure, £100 would have fallen in value after the crash but would have recovered its original £100 value by the end of 2005 and since then grown to c£168.

So,  the total return is more meaningful than the headline you see in the paper, but only explores one side of the coin when taken at face value.  Another consideration is that of investor’s who have taken the diversification route over say the past 14 years. Those investors that chose to diversify beyond the FTSE 100 and  hold small companies with a history of performing better than large companies over the long term. According to a well-known fund adviser during this period, UK small companies more than tripled in value, so an investment in the whole UK market, measured by the FTSE All-Share, would have made the £100 investment £190 over the same period. On top of that, they reported that a global portfolio of shares over this period of time returned £176 from the initial £100 investment.

The next time you hear that one of the world’s headline indices has risen or fallen, think hard about how meaningful this is to your broad portfolio of investments.  We must all remember however that everyone has individual needs and requirements and that past performance is not an indicator of future results.

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