The annual Barclays Equity Gilt Study offers a reminder of two key investment principles. The first is to hold stocks for the long term, since they do better than bonds or cash. Since the end of 1899, UK equities have returned an average of 5% a year after inflation compared to just 1.3% for gilts and 0.8% for cash. Over 50 years, the figures are 5.6% and 2.9% respectively. Today's overpriced gilts are narrowly ahead over 20 years, but the odds of stocks outperforming gilts if you hold them for 18 years is 86%.
So it's important not to be panicked by a few bad years. Stocks' superiority over the long term makes sense because investors reap the benefits of a growing economy through higher company profits. Bondholders just get a fixed sum.
The second lesson is always to reinvest your annual dividend income: £100 put into stocks in 1945 would have grown to just £251 by now in real terms if you had relied only on capital gains. But with annual reinvestment it would have jumped to an inflation-adjusted £5,113 over 20 times more.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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