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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
-
What does Rachel Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
