If I’d invested £1,000 in the FTSE 100 after Black Monday, here’s how much passive income I’d have now!

On the 36th anniversary of Black Monday, I wonder how much income would be generated today, from £1,000 invested in the FTSE 100 just after the meltdown.

Group of young friends toasting each other with beers in a pub

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On 19 October 1987, the FTSE 100 plummeted 10.8% — a day that became known as Black Monday. In the US, the Dow Jones fell 22.6%. It’s often forgotten that on this side of the Atlantic, the market was down even more (12.2%) the following day.

I was at school so I didn’t experience the panic that investors must have faced at the time. This dramatic period came three years after the privatisation of BT, an event that kick started an era of wider share ownership.

Courage and conviction

But those brave enough to have invested during these tumultuous events would now be sitting on a healthy gain.

At close of business on Black Monday, the FTSE 100 had a value of 2,052. It’s now around 7,675. That’s an increase of 274%, meaning £1,000 invested then would now be worth £3,740.

Not a bad return considering we have experienced a global financial crisis, the dotcom crash, Brexit, a pandemic, a war in Ukraine, and three recessions, during this period.

Keep on buying

But by reinvesting dividends it would have been possible to achieve an even bigger return.

According to IG, adopting this approach would have delivered growth of 7.4% a year between 1984 and 2022. A lump sum of £1,000, invested in October 1987, would now be worth a much more impressive £14,033.

The power of using dividends to buy more shares is illustrated in research undertaken by Schroders. From 1 January 2000 to 14 December 2018, the FTSE 100 fell just over 1%. But during this period, dividends returned 93.5% — equivalent to an average of 3.5% a year.

Although dividends are never guaranteed, the past tells me that the UK’s largest listed companies have a good track record of making reasonable cash returns to shareholders.

The other lesson to be learned from the history of the Footsie is that investing should focus on the long term. This helps mitigate against the risk of market volatility.

Constantly buying and selling stocks is trading, not investing. If the correct shares are chosen, the gains will be higher. But there’s also the possibility of incurring some big losses by adopting a short-term approach.

Investing for a second income

For most people, there comes a point in their lives when they could do with a bit more income. That’s usually in retirement, when an individual’s career has come to an end.

According to AJ Bell, the FTSE 100 is currently yielding 3.9%.

I could therefore earn passive income of £547 a year, from a sum of £14,033.

By taking a long-term view in 1987, 36 years later it would have been possible to generate an annual income equivalent to more than 50% of the initial amount invested.

I don’t think many people would have thought that possible in October 1987, when they were assessing the damage inflicted on their portfolios by the Black Monday sell-off.

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.

James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc. 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.

More on Investing Articles

Hand of a mature man opening a safety deposit box.
Small-Cap Shares

Invest in gold? I think undervalued UK shares could deliver bigger returns

Taking a medium to long-term view, Edward Sheldon reckons small-cap UK shares – which are very cheap right now –…

Read more »

Close-up of British bank notes
Investing Articles

11% dividend yield! 1 FTSE 100 income stock to buy today?

I’m hunting for high dividend yields in the FTSE 100, and this financial institution currently offers the highest payout. Is…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Should we buy more FTSE 100 shares in December? The stats seem to say yes

The different months of the year should have no effect on where the FTSE 100 goes, should they? The evidence…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

8% yield! Here are the dividend forecasts for Barclays shares for 2024 and 2025

This FTSE 100 bank offers one of the biggest yield on the UK's blue-chip share index. But is it too…

Read more »

Young woman holding up three fingers
Investing Articles

3 reasons why Lloyds’ share price could surge through £1 in 2024!

Optimistic UK investors are buying Lloyds in the hope of a sharp share price rebound. Could the company be a…

Read more »

smiling couple holding champagne glasses and looking at camera at home with christmas tree
Dividend Shares

2 discounted high-dividend stocks on my Christmas list!

These top dividend stocks are already in the Christmas sales! I'm hoping to buy them to make a solid second…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I’m eyeing these two cheap dividend shares for 2024!

This Fool likes dividend shares as a play for 2024. Here, he identifies two that look cheap and explains why…

Read more »

Investing Articles

This FTSE 250 growth machine is top of my list of stocks to watch in 2024

Despite a 13% fall, Games Workshop shares trade at a P/E ratio of 22. Stephen Wright plans to keep a…

Read more »