It is not the only parallel. Looking at the economic backdrop in 1981, there are more than a few similarities with the outlook today. Thirty years ago the mood music was dreadful, with spending cuts, high unemployment, windfall taxes on the banks and North Sea oil producers, inflation, unrest on the streets and a new-ish government embarking on a bold and extremely unpopular economic policy.
That result prompted me to take a look at each 30-year period covered by the Barclays database, starting with 1899-1929 and ending with 1980- 2010. There are 82 of them and they paint a remarkably consistent picture. For most of the past century, anyone investing for a 30-year period has been rewarded with a return in excess of inflation of between 4pc and 8pc a year if they were sensible about re-investing the dividend income from their holdings.
That was true whether you started investing in the depths of the Depression, during the war or in the Swinging Sixties. Anyone who began investing in the Edwardian period would have done a bit worse thanks to the poor performance of shares towards the end of their 30-year timeframe; those who were lucky enough to begin in the mid-1970s when shares were uniquely cheap went on to enjoy near double-digit real returns.
Thirty years is a good timescale over which to analyse market returns because for most people that will approximate to their investing lifetime, starting when they first begin to have some money to set aside and ending with their retirement. And with inflation clearly on investors' radars again after an anomalous period of price stability, it is reassuring to think that equity investment can keep pace with the cost of living and provide some real growth as well.
Averages can be misleading, so I also looked at some individual share performances over that period. They provide a strong argument for buy-and-hold investing in market-leading companies (which, of course, is rather easier in hindsight than real time). Over the following 30 years, �1,000 invested in 1981 would have ended up as �85,000 in Unilever shares, �73,000 in Rio Tinto, �37,000 in BP and �15,000 in M&S.
History, of course, does not repeat itself and today's circumstances, while in some ways similar, are notably different in a number of ways. Technological advance is a key driver of economic growth, so it is interesting to note that in 1981 36pc of TV licences in Britain were for black and white sets. Another key difference is that inflation in 1981 was over 12pc and interest rates at the same level in a bid to rein in prices. Today inflation is less than half as high but interest rates at an all-time low indicate the challenge ahead is not too much growth but too little. Who knows what the next 30 years hold, but at this stage the 5.6pc annual real return the market has averaged for a typical investing lifetime looks good enough for me.
tomrstevenson@fil.com
? Tom Stevenson is an investment director at Fidelity International. The views expressed are his own. Twitter: @tomstevenson63.
latest business news latest economics news latest finance news latest investing news business
No comments:
Post a Comment