On December 30th, 1999, the FTSE 100 index of the UK's
biggest companies hit its highest closing level ever. Despite two stock market crashes (the IT crash and the global financial
crisis), the terrorist attacks of 9/11, and a euro crisis , on average, shares in the FTSE 100 yield about 3%
a year, which is comfortably better than the best cash ISA, even allowing for
tax free interest
Even if the capital value of some shares in the index may
have declined over the last 15 years, its dividends have grown healthily. The
equity market has delivered significant returns ahead of inflation for long
term investors.
"Despite the FTSE 100 remaining below the level it
achieved in 1999, the vast majority of investors should have made money over
this 15-year period," says Rebecca O'Keeffe, head of investment at
Interactive Investor. She estimates that anyone reinvesting dividends would
have generated an overall return of 60% since 1999. Others put the figure at
nearer 80%.
HSBC shares have fallen by 15% since 1999, but dividends
have produced an overall return of 64%.
Even if someone who
invested £10,000 in the FTSE 100 at the worst moment, on 30 December 1999,
would now be sitting on more than £15,000 with income reinvested, according to
Laith Khalaf, a senior analyst at Hargreaves Lansdown. Someone investing
£10,000 in a FTSE 250 tracker in 1999 would have more than doubled their money
to £23,000 over the period. If they had reinvested the dividends, they would
have more than tripled their money, to £36,000.
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