Synopsis: The FTSE 100 has at last reached a new high after more than 15 years. It sounds a long wait, but investors have not done as badly as some press coverage suggests.

Just before the end of the last millennium, on 30 December 1999, the FTSE 100 (Footsie) closed a shortened day’s trading at 6,930.2. Thoughts were more on partying at the time and the new high for the index went largely unnoticed. Most of the month had been spent in new high territory, driven by the technology boom.

With the new millennium, the index began to fall, finally reaching a bottom of 3,287 on 12 March 2003 as the Second Gulf War got underway. It took until 24 February 2015 for the Footsie to break through its 1999 high, although it had been threatening to do so on and off since May 2013.

The fact that more than 15 years has elapsed between peaks has prompted more than a few uninformed comments about what a poor investment UK equities have been in the 21st century. There are a variety of points worth noting when such comments are made:

  • The FTSE 100 index measures capital values, not total investment returns. If allowance is made for reinvested dividends the end-1999 investor in the index would now be showing an overall return of just above 67%. And remember, all those dividends would have been paid net of basic rate tax. Expressed as an annual overall return, the millennial investor would have achieved 3.4%.
  • Inflation between December 1999 and January 2015 (the latest data available) averaged 2.8% based on the RPI basis and 2.1% if the CPI is the yardstick. On either inflation measure, the Footsie with reinvested dividends produced a real return.
  • According to the latest Barclays Capital Equity Gilt Study, the average annual return from building society investment since the end of 1999 would be 1.9%, allowing for basic rate tax on interest. Barclays’ data show that gross annual interest rates have been 0.25% or less since 2009, which is what brings down the 15 year return to a sub-inflation level.
  • If you look at dividends in isolation, then the yield on the FTSE 100 has risen from 2.04% at the end of 1999 to 3.40% now. That is a 67% increase, which given the index value is virtually the same, equates to a 67% rise in income, once more bettering inflation. Again using Barclays’ figures, net interest from a building society account has fallen from 4.29% in calendar 2000 to 0.20% in calendar 2014.
  • The FTSE 100 may be the most commonly quoted of the UK stock market indices, but it is not the professional’s choice as it only covers the 100 largest listed companies – about 80% of the market. The professional’s index, the FTSE Actuaries All-Share Index, currently covers 640 companies, most of which are more UK-oriented than the Footsie’s constituents. The All-Share broke through its end-1999 peak in 2007 and its total return in this millennium (with dividends reinvested) is just shy of 90% – equivalent to 4.3% a year.


The performance of the Footsie is another example of the importance of reinvesting dividend income, rather than ignoring it.

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