Invest In Uk Stock Market

Invest In Uk Stock Market – The FTSE 100 has fallen 20% in two decades, so why are investors being asked to think long-term? A case that pays dividends for Simon Lambert’s defense

Can you salvage the British stock market’s terrible performance since the turn of the millennium? Dividends are important

This is the question facing those of us who advocate investing in the stock market as the best way to grow our wealth.

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It’s been a brutal fifteen and a half days for investors and the main UK stock market index closed again yesterday as the Bank of England cut emergency interest rates to zero .25% and Rishi Sunak’s coronavirus budget.

This morning it fell 6% to 5,551 – down 28% from its most recent peak in mid-January.

More importantly, it was down 20% from its dot-com boom peak of 6,930 on New Year’s Eve 1999.

You can see why people who are skeptical about the risks of investing money might claim that the stock market has had its juices for two decades, although they might be a bit wrong as it has dropped quite a bit.

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There is a fundamental flaw in the way the stock market is measured by the UK’s biggest companies, the FTSE 100 and its cousins, the mid-range FTSE 250 and the broader FTSE All-Shares indexes .

All of this creates an index based on the company’s stock price, but it does not provide long-term investment returns.

What matters most is the overall reward you get from holding the stock, and much of that comes from cumulative dividend payments.

You need to measure total return indices – and while the FTSE compiles them for the major indexes, they are not publicly available, although you’d think that would benefit the London Stock Exchange or investment forum. do like that

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How much the dividend is different: This chart shows the benchmark FTSE 100 index (grey) since 1986 compared to the FTSE 100 total return index (red) over the same period.

Take the FTSE 100 total return index and the picture looks very different over the past 20 years.

Earlier this week, I asked AJ Bell’s Russ Mold to get these buck figures so I could compare.

On December 31, 1999, the FTSE 100 was at 6,930, but on Monday the stock market was at 5,966 after falling 7.7% in a day – down 14%.

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By contrast, on December 31, 1999, the FTSE 100 total return index stood at 12,447, but ended at 22,114 on Monday – up 77%.

Over 20 years, that’s an average annual return of 2.86%, which honestly is pretty bad for two decades of investing.

That’s a bit higher than inflation, which has been 75% since the early 2000s, but you’ll probably have a hard time balancing that rate with cash savings.

And, on the plus side, the 77% return is significantly better than the 14% loss.

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It’s important to remember that if you’re investing in something that has only tracked the FTSE 100 over the past 20 years then you’re doing it wrong.

Investments should be more diverse than just the top 100 UK companies or the wider FTSE basket of shares, which includes many companies listed on the UK stock exchange.

Ideally, you start from a global ownership position by investing in funds, trusts or trackers rather than investing in companies across the planet – and add a little extra if you wanted a little more exposure to the UK.

Investors in global funds will get better returns than the FTSE 100 or All-Share total return versions over the past 20 years.

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If you want to reassure yourself when you anxiously watch the stock market sink into the red, you should remember the total return from it instead of focusing on the misleading stock market index.

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Dmg Media Contact us How to complain How to advertise with us Contributor terms Subscription terms Do not sell or share my personal information Cookie settings Privacy and Cookie Policy Off-the-shelf Common stocks and bonds or garden stocks, a balanced portfolio may include “alternative investments” that are often high risk. Investments (but potentially high returns) include hedge funds, crowdfunding, art, cryptocurrency, private equity, and venture capital.

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But one alternative investment group that has real utility and relatively low risk compared to others is real estate or real estate.

Real estate investing is considered more “slow and steady” because apartments and office blocks are not traded directly on exchanges (even large real estate-owning companies can be). ). This helps insulate the real estate from daily fluctuations in value. UK commercial property (i.e. offices and shops) had a total return of 6% in 2018 and UK residential property (i.e. houses and apartments) delivered a profits of around 3% – although of course regional differences still exist.

If you have a large pile of money lying around, you can immediately buy a property. Low cash payments in the Alpine region can often create large deposits that you can use as a mortgage – a long-term loan against the property you want to buy. But after this.

As a property owner, you benefit from the value of that property when you sell it, from the income you can earn from renting it out to tenants – and of course, from the amenities you get by living or using the property itself.

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Interestingly, the appeal of owning an entire property depends partly on culture. For example, in England, property ownership is highly effective: “The Englishman’s home is his castle.” But in countries like France and Germany, the idea of not owning any real estate is not popular.

Easy, partner. Yes: Some investors may choose to invest in real estate through the stock market, purchasing shares of companies that own and manage properties as landlords and earn income in the form of lease. Since they are a listed company, the value of their shares can change daily…

But these companies are also “asset-backed” – that is, they own real estate that investors can see and touch, have a relatively stable value – and can sell if the company need more cash. That means their investors will be less likely to flee when the market turns volatile, even if the assets of some tech companies are unclear (how do you touch a website? ).

However, during a recession, it’s worth remembering that real estate prices can fall along with stocks – leaving you doubly screwed.

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It’s no secret that the value of land – and by extension, property – in the UK has increased over time. After all, islands have limited space – and growing populations place greater demands on the same supplies. But how exactly did that affect the price?

It depends on your frame of reference. But if you start in 1989 (when you, dear reader, were probably a baby in arms), UK house prices rose by 308% – but the UK stock market only rose 228%. Of course, in the process, the value of both has decreased significantly. For example, starting measurements in 2000 (after stocks burst the dotcom bubble) shows that house prices now have a clear advantage – but home buying returns in 2008 are higher than those in 2014.

Note that in the chart above, we have not included the income that some property owners earn from renting out their properties. But to be fair, we only show changes in FTSE 100 share prices – and don’t include additional returns.

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