FTSE 100 Slumps 15% in 16 Years: Are Shares A Waste Of Time?

Should you avoid buying shares after the FTSE 100’s (INDEXFTSE:UKX) performance in the 21st century?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing in shares is often viewed as an activity from which it’s possible to consistently make a high return. However, since the year 2000 the FTSE 100 has fallen by 15% and other assets such as property and even cash have proven to be better investments. As such, it’s little surprise that interest in shares and pensions is rather lukewarm, with many individuals in the UK having sought to improve their retirement prospects via buy-to-let rather than by having a diversified portfolio of shares.

However, the headline fall in the FTSE 100 during the last 16 years doesn’t paint the full picture. Certainly, if you had bought at the start of the year 2000 and done no further buying, then you would be 15% down on your initial investment. But dividends during that period would equate to around 48% even if they weren’t reinvested and didn’t generate any further return. And if they were reinvested, then the total return for the 16-year period would be a much healthier 45% (this includes the 15% capital loss).

Low returns … or are they?

While a 45% total return in 16 years is still very low and works out as an annualised return of just 2.4%, the time period selected skews the results. In other words, the last 16 years have been a very disappointing period for the FTSE 100 and the reasons for this include the bursting of the dot.com bubble, the 9/11 terrorist attacks, the Credit Crunch and the current weakness caused by a slowing China and falling oil price. If a different time period were selected then it’s likely that the results would have been much better. For example, buying seven years ago would have led to a total return of around 90%, which works out as an annualised return of 9.6%.

Of course, there have always been challenges facing the FTSE 100. In the 1980s there was a major crash, while in the 1990s there was considerable uncertainty regarding the UK economy’s future following the ERM disaster of 1992. Despite such problems, the FTSE 100 roared onwards and upwards (following short-term falls) and had soared by 6.7 times from 1984 to the year 2000. Since then, though, it has been a rather poor place to invest.

Looking ahead, the future for the FTSE 100 is unlikely to be anything like its past. That’s because asset prices move in cycles and so the disappointment of the last 16 years is unlikely to be repeated. Evidence to support this can be seen in the fact that the Chinese consumer growth story is only just beginning, the US economy is back on its feet, the FTSE 100 is at a relatively low level and its constituents offer upbeat growth prospects at discounted prices. As such, far from being a waste of time, shares seem to be the asset to buy for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »

Investing Articles

Are Trump’s tariffs a once-in-a-lifetime chance for ISA investors to get rich?

The £20,000 Stocks and Shares ISA limit will reset on 6 April. Smart investors could use current market volatility to…

Read more »

Investing Articles

Here are the latest Persimmon share price and dividend forecasts

Our writer looks at the latest forecasts for the Persimmon share price and considers what level of dividend the stock…

Read more »