Martin Lewis recently highlighted the wealth-creating ability of the FTSE 100 index on one of his TV shows. This wasn’t the first time he has talked about stock market investing, as Lewis devoted a special programme to the subject in December.
Back then, the personal finance guru showed how £1,000 invested in the MSCI World Index a decade before would have turned into about £3,790. In contrast, a grand held in his top savings accounts would only have generated £1,270 — losing money to inflation in purchasing power terms!
In the recent show, however, Lewis said that eagle-eyed viewers had pointed out that the market had nosedived soon after, making the returns look a tad rosy. That dip followed the war in Iran.
So, according to updated calculations, how much would £1k in the FTSE 100 and a global tracker fund a decade ago be worth today?
Easily beating cash
According to Lewis’ latest show, here are the various returns (with all dividends reinvested):
- S&P 500: £4,110
- World index: £3,600
- FTSE 100: £2,400
- Cash savings account: £1,290
Based on this, the FTSE 100 has beaten both inflation and cash by some distance. And the world index fund and S&P 500 have still done exceptionally well (note, the S&P 500 has hit highs again recently).
Is this type of return nailed on?
Lewis does point out that there’s no guarantee such returns will be replicated over the next decade. This makes investing more uncertain and therefore higher risk.
Meanwhile, fluctuating market performance is inevitable, making a long-term mindset crucial. However, there are some things that can help mitigate risk.
- Consider passive funds rather than just individual shares
- Invest for a minimum of five years
- Invest regularly rather than with a lump sum (known as ‘pound cost averaging’)
- Buy multiple funds across asset classes (shares, bonds, gold, etc) to increase diversification
- Try not to check stock market performance every day
Not either/or
Now, I’m a fan of passive investing, and I own a couple of exchange-traded funds (ETFs) myself. But I don’t think it needs to be either/or. You can hold both (passive and active).
For example, one active vehicle I own is Scottish Mortgage Investment Trust (LSE:SMT). This fund has done really well, jumping 135% inside the FTSE 100 in past three years. But there have been some big swings up and down along the way.
Scottish Mortgage invests in what it believes are going to be some of the big growth companies of the future. In the past, this led it to stocks like Nvidia and Tesla, which created enormous long-term returns.
However, there’s a big trend involving companies staying private for longer. So Scottish Mortgage also invests in unlisted firms, including the likes of SpaceX, Anthropic, ByteDance, and Revolut.
The valuations of the first two of these names have surged recently as investor excitement about space stocks and AI have reached fever pitch. This does create some risk because many people think these two areas have reached bubble territory.
On the other hand, it proves that the trust’s strategy is working, with SpaceX and Anthropic creating enormous value in the private markets. I think the stock is worth considering as part of a pound cost averaging strategy.
Ben McPoland has positions in Nvidia and Scottish Mortgage Investment Trust.
