If you look at stock market charts from 100 years ago, you’ll get the impression that you can’t lose in stocks over the long term.
Even if you go back to January 1984 when the FTSE 100 was founded at a benchmark level of 1000, it is now just south of 8000, up about 600%.
This hides the fact that there are long periods when stocks are bad, and that you’re actually better off putting your money in government bonds or the best savings account at your local construction association.
People selling stock market funds won’t tell you that.
Over the past five years, the FTSE 100 has risen just 6%, compared to a 50% rise in the Dow Jones over the same period.
Excitement that the FTSE might hit a new high, breaking the 8,047 recorded in February last year, is misplaced.
This is well below an all-time high, driven in part by expectations that some large companies will abandon London for New York, where they may get better value. .
So when that high arrives, it will be based in part on very low optimism about the future of London stocks.
Small and medium-sized enterprises are rapidly withdrawing from the stock market, realizing that the benefits of entering the market far outweigh the hassles. Peel Hunt today predicted that if current trends continue, the FTSE Small Cap Index will completely cease to exist by 2028.
At least the Conservatives can point out that London stocks have fared slightly better under a Conservative government than a Labor one – the City is an inherently conservative animal.
Assuming interest rates start falling between now and the election, stocks should rise. While it won’t be enough to save the government, it may make investors feel better, and an overall boost to confidence in the city is desperately needed.
