Celebrating 70 years of stock market returns

Economic, social and cultural change (and the changing complexion of the UK stock market).

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The celebrations of the Queen’s Platinum Jubilee were quite something. There was a good deal of barbecuing, partying and toasts to Her Majesty in my neck of the woods.
 
But I also watched and read some of the media coverage of national events, which included a fair bit of reflection on the huge economic, social and cultural changes of the last 70 years.
 
Perhaps fittingly, in this context, more of my viewing was on digital devices than on traditional broadcast TV, and all my reading was online, rather than via the quaint old medium of newsprint.

Overcoming ups and downs

Some things haven’t changed. The Queen has remained an enduring figure of resilience through the Royal Family’s highs and lows, and the UK economy has prospered, weathering a number of major crises and recessions.
 
Likewise, despite some big ups and downs, we can also celebrate 70 years of impressive stock market returns.

Back in 1952

The UK was a very different place when the young Princess Elizabeth was crowned Queen Elizabeth II in 1952.

Winston Churchill was on his second stint as prime minister; heroic wartime computer scientist Alan Turing was convicted of “gross indecency between males;” Newcastle United won a then-record fifth FA Cup; and, late in the year, the Great Smog of London blanketed the capital, causing chaos and an estimated 4,000 deaths.

The FTSE 100, the UK’s best-known stock index today, didn’t even exist in 1952. The FT30 (also called the FT Ordinary Share Index) was the index of the time.

Barometer of the UK economy

The FT30 was devised by the editor and chief leader writer of the Financial News in 1935. It was originally known as the Financial News 30-Share Index, until the paper merged with the Financial Times in 1945.
 
The index was designed to track the performance of a selection of the companies that were significant to the UK economy. It was an unweighted geometric average of 30 such stocks. Changes to the constituents were (and still are) infrequent, usually on a company being taken over. And a replacement stock is chosen by the FT editor with an eye to maintaining the index as a barometer of UK economic performance.

Industrial nation

At its inception, the FT30 was dominated by heavy industry sectors, such as coalmining, steelmaking and textiles. Names like Bolsover Colliery, Dorman Long, and Fine Spinners and Doublers.

Despite post-war nationalisations taking some stocks out of the index, replacements like shipbuilder Swan Hunter meant the prominence of industrials was little changed when the Queen took the throne in 1952.

Shift towards service industries

Reflecting the significant change in the complexion of the UK economy over the subsequent 70 years, there’s been a shift in the composition of the FT30 away from heavy industry towards service sectors.

The financial sector (originally excluded from the index) now has representatives from banking, insurance and asset management, including Lloyds and Legal & General. BT and Vodafone are also members. Other service businesses include credit checker Experian, media group ITV, retailer Next and advertising agency WPP.

70 years of stock market returns

There have been some big falls in stock markets during the Queen’s reign. The FT30 lost 73% of its value around the 1970s recession. It also suffered significant falls sparked by the dotcom bust, the financial crisis and the Covid pandemic.

Nevertheless, according to asset manager Schroders, UK equities have returned just under 12% a year since 1952 — almost double the 6% a year savers have earned on cash.

Some investors may have enjoyed even better returns. Those who steered clear of the UK’s structurally declining heavy industry sectors and/or diversified their portfolios with stocks from higher growth markets, such as the US.

Looking ahead to the next 70 years

The historic, long-term wealth-building power of owning equities is why our analysts here at The Motley Fool have a large focus on identifying great UK (and US) businesses in industries that have structural drivers for growth, with a view to buying and holding their shares for many years.

Like the Queen, and most of you reading this column, I won’t be around seven decades from now. However, I’m as confident as I can be that current investors, and those of the next generations, will reap rewards from patient, long-term investing in the stock market.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Graham has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian, ITV, Lloyds Banking Group, Vodafone and Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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