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| How to make money despite the FTSE's 15-year losing streak | How to make money despite the FTSE's 15-year losing streak |
| (about 11 hours later) | |
| Fifteen years ago, on 30 December 1999, the FTSE 100 index of the UK's biggest companies hit its highest closing level ever - at 6,930. | |
| Conventional wisdom says that anyone who invests in shares over such a long period can expect to make money. | Conventional wisdom says that anyone who invests in shares over such a long period can expect to make money. |
| But after two stock market crashes, the terrorist attacks of 9/11, and a euro crisis or two, the market has still not regained its 1999 peak. | But after two stock market crashes, the terrorist attacks of 9/11, and a euro crisis or two, the market has still not regained its 1999 peak. |
| Three times in 2014 the index came close, but each time fell back. | Three times in 2014 the index came close, but each time fell back. |
| So on Christmas Eve the FTSE 100 stood at 6,610, still more than 300 points short of its record level. | So on Christmas Eve the FTSE 100 stood at 6,610, still more than 300 points short of its record level. |
| On paper, it looks like the average investor will have lost money. | On paper, it looks like the average investor will have lost money. |
| 'White knuckle ride' | 'White knuckle ride' |
| But remember that most shares pay out dividends. | But remember that most shares pay out dividends. |
| On average, shares in the FTSE 100 yield about 3% a year, which is comfortably better than the best cash ISA, even allowing for tax free interest. | On average, shares in the FTSE 100 yield about 3% a year, which is comfortably better than the best cash ISA, even allowing for tax free interest. |
| Indeed even though the capital value of shares in the index may have declined over the last 15 years, some dividends have grown healthily. | Indeed even though the capital value of shares in the index may have declined over the last 15 years, some dividends have grown healthily. |
| "Despite the FTSE 100 remaining below the level it achieved in 1999, the vast majority of investors should have made money over this 15-year period," says Rebecca O'Keeffe, head of investment at Interactive Investor. | "Despite the FTSE 100 remaining below the level it achieved in 1999, the vast majority of investors should have made money over this 15-year period," says Rebecca O'Keeffe, head of investment at Interactive Investor. |
| She estimates that anyone reinvesting dividends would have generated an overall return of 60% since 1999. | She estimates that anyone reinvesting dividends would have generated an overall return of 60% since 1999. |
| Others put the figure at nearer 80%. | Others put the figure at nearer 80%. |
| Thus an investor in BP would have lost 33% of their capital over the period, but would have gained 20% from reinvested dividends. | Thus an investor in BP would have lost 33% of their capital over the period, but would have gained 20% from reinvested dividends. |
| HSBC shares have fallen by 15% since 1999, but dividends have produced an overall return of 64%. | HSBC shares have fallen by 15% since 1999, but dividends have produced an overall return of 64%. |
| Even someone who invested £10,000 in the FTSE 100 at the worst moment, on 30 December 1999, would now be sitting on more than £15,000 with income reinvested, according to Laith Khalaf, a senior analyst at Hargreaves Lansdown. | Even someone who invested £10,000 in the FTSE 100 at the worst moment, on 30 December 1999, would now be sitting on more than £15,000 with income reinvested, according to Laith Khalaf, a senior analyst at Hargreaves Lansdown. |
| "It has been a white knuckle ride at times, encompassing the tech crash, the global financial crisis and two bull markets," says Mr Khalaf. | "It has been a white knuckle ride at times, encompassing the tech crash, the global financial crisis and two bull markets," says Mr Khalaf. |
| "But despite all that, the equity market has delivered significant returns ahead of inflation for long term investors." | "But despite all that, the equity market has delivered significant returns ahead of inflation for long term investors." |
| Small print | Small print |
| If dividends rather than capital growth have become more important over the last 15 years, investors are being warned to keep that in mind when selecting where to put their money. | If dividends rather than capital growth have become more important over the last 15 years, investors are being warned to keep that in mind when selecting where to put their money. |
| Many experts advise the average investor to buy so-called tracker funds, as they are low risk and usually have low management charges. | Many experts advise the average investor to buy so-called tracker funds, as they are low risk and usually have low management charges. |
| These are designed to follow the performance of a particular index, like the FTSE 100. | These are designed to follow the performance of a particular index, like the FTSE 100. |
| But not all tracker funds pay dividends. | But not all tracker funds pay dividends. |
| Some are "synthetic" trackers, which use derivatives to make sure investors benefit - or lose - to the same degree as the index itself. | Some are "synthetic" trackers, which use derivatives to make sure investors benefit - or lose - to the same degree as the index itself. |
| James Maltin, the investment director at Rathbone Investment Management, says some of these do not pay dividends. | James Maltin, the investment director at Rathbone Investment Management, says some of these do not pay dividends. |
| He advises clients to buy "fully replicated" trackers, which actually buy shares from all the companies in the index, and which do pay dividends. | He advises clients to buy "fully replicated" trackers, which actually buy shares from all the companies in the index, and which do pay dividends. |
| "Read the small print; check what you're getting," he says. "Fully replicated trackers are preferable." | "Read the small print; check what you're getting," he says. "Fully replicated trackers are preferable." |
| 'Beyond' the FTSE 100 | 'Beyond' the FTSE 100 |
| The next advice is to think more widely than just the FTSE 100. | The next advice is to think more widely than just the FTSE 100. |
| While it has been flat-lining, the index of the next 250 largest companies in the UK - the FTSE 250 - has soared. | While it has been flat-lining, the index of the next 250 largest companies in the UK - the FTSE 250 - has soared. |
| In December 1999 it stood at 6,444. | In December 1999 it stood at 6,444. |
| Fifteen years on the FTSE 250 has passed 16,000. | Fifteen years on the FTSE 250 has passed 16,000. |
| According to Hargreaves Lansdown, someone investing £10,000 in a FTSE 250 tracker in 1999 would have more than doubled their money to £23,000 over the period. | According to Hargreaves Lansdown, someone investing £10,000 in a FTSE 250 tracker in 1999 would have more than doubled their money to £23,000 over the period. |
| If they had reinvested the dividends, they would have more than tripled their money, to £36,000. | If they had reinvested the dividends, they would have more than tripled their money, to £36,000. |
| The reason the FTSE 250 has performed better than the FTSE 100 is that it is more closely aligned with the fortunes of the UK economy. | The reason the FTSE 250 has performed better than the FTSE 100 is that it is more closely aligned with the fortunes of the UK economy. |
| Around 75% of the earnings of FTSE 100 companies are made overseas - with many having just a listing, and an office, in London. | Around 75% of the earnings of FTSE 100 companies are made overseas - with many having just a listing, and an office, in London. |
| "If you want to invest in UK PLC, then it really does make sense to look beyond the FTSE 100 to mid-sized and smaller companies," says Jason Hollands, managing director at Tilney Bestinvest. | "If you want to invest in UK PLC, then it really does make sense to look beyond the FTSE 100 to mid-sized and smaller companies," says Jason Hollands, managing director at Tilney Bestinvest. |
| "These tend to be more closely linked with the UK, which is faring considerably better than many other parts of the world at the moment." | "These tend to be more closely linked with the UK, which is faring considerably better than many other parts of the world at the moment." |
| 2015 forecasts | 2015 forecasts |
| For the FTSE 100 index to stage any substantial recovery, some analysts believe that sentiment towards energy and mining stocks will have to improve significantly. | For the FTSE 100 index to stage any substantial recovery, some analysts believe that sentiment towards energy and mining stocks will have to improve significantly. |
| Events in Russia, any continuing fall in the oil price, and the UK general election are likely to add extra elements of volatility. | Events in Russia, any continuing fall in the oil price, and the UK general election are likely to add extra elements of volatility. |
| As a result, investment banks are cautious about predicting any great advance in the FTSE. | As a result, investment banks are cautious about predicting any great advance in the FTSE. |
| Brewin Dolphin believes it will end the year at 7,000. | Brewin Dolphin believes it will end the year at 7,000. |
| Credit Suisse is one of the most optimistic, suggesting 7,300. | Credit Suisse is one of the most optimistic, suggesting 7,300. |
| So it may be likely - although it is by no means certain - that the FTSE 100 will finally break its 15-year losing run in 2015. | So it may be likely - although it is by no means certain - that the FTSE 100 will finally break its 15-year losing run in 2015. |