How significant will the FTSE 100 returning to its all time high really be?

23rd May 2013


The FTSE 100 looked like it was to return to its all-time high this week. Then bad news from China, IMF disapproval of UK economic policy and nervousness about the Fed saw it fall back again.

It had, as thisismoney reported, hit a 13 year high. It has not so far, hit 6,930.20, its highest ever value reached in December 1999 amidst the hype of the dotcom bom.

If and when it does, it will be both hugely significant and actually not very significant at all. What it certainly won’t mean is that anyone who has been invested in the Footsie, since before the tech crash is finally making their money back.

Seasoned investors and Mindful Money readers obviously know this. Many other people do not because unfortunately they discount dividends. Re-invested this gives a much higher total return.

Hargreaves Lansdown’s senior investment manager, Adrian Lowcock says the total return combining share price and dividends, until last Tuesday’s close, was up 54.81% compared with the index being 1.82% off its previous peak. Dividends reinvested contributed to growth 54% over 13 years which means that no-one who stayed invested in the market is down at all. He adds that at the time the price to earnings ratio was around 25 times compared with around 14.7 times now. But that’s bubbles for you.

He also argues that investors in active funds would probably have seen the majority of the last 13 years showing a gain.

Mindful Money rather wishes however, that when news outlets and the television in particular runs a standard ‘billions’ wiped off shares it also then ran subsequent stories about the usual rebound.

The market doing so well, the very recent slight reverse excepted, does mean that there are many stock market drivers in rude health. The FTSE 100 means that many British firms including UK multi-nationals are seeing their share price doing much better. It also means increasingly that many firms that haven’t very much to do with the UK but are listed here are doing better as well.

It means that your portfolio is doing much better, though, we assume if you have a reasonably diversified spread of investments, or even a collection of funds, it won’t be directly correlated to the topflight index. Your pension, whatever form it takes, and certainly if it is defined contribution is also likely to be doing much better as well.

The increase in wealth that stock market gains signify can also lead to a more gains for the economy though in some parts of the UK they might raise a cynical eyebrow at the suggestion.

However if and when the FTSE reaches its ‘all-time high’ if would be refreshing to hear what it really means. Even people who have only invested in the FTSE 100 will not simply be back where they started 13 years ago but actually much further ahead for having braved the market. Stock market investing, and investing in funds is risky, but the returns are arguably better than many people think.

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