Last week, UK money guru Martin Lewis gave an eye-opening presentation on investing in the stock market. In it, he showed how over the last 10 years, returns from stocks have trounced the returns from cash savings.
Now, obviously that in itself was a big takeaway (the audience gasped when Lewis showed how well stocks have done relative to cash). But there was another takeaway that’s worth highlighting and could help Britons generate more wealth over the long term.
Different markets have generated different returns
When showing the performance of stocks over the last decade, Lewis highlighted several different stock market indexes. These were:
- The FTSE 250: A UK index that encompasses the largest 250 stocks in the UK market outside the largest 100
- The MSCI International ACWI net index: A global index that encompasses stocks from many different countries
- The S&P 500: America’s flagship stock market index that contains the largest 500 companies
Now, look at how much £1,000 invested in these indexes was worth after 10 years:
- FTSE 250: £1,640
- MSCI International ACWI net index: £2,980
- S&P 500: £3,790
The difference in the return between the UK index and the US index is staggering. And it highlights one really important strategy when it comes to long-term investing and that’s having some exposure to international stocks.
Often, investors stick to their home market because that’s what they’re familiar with (this is called ‘home bias’). This can backfire though.
Because sometimes, an investor’s home market can produce disappointing returns. By diversifying money over several different geographic markets, an investor can increase their chances of success.
Lucrative opportunities in the US
The good news is that investing in international stocks has never been easier. Today, an investor can get exposure to the S&P 500 very easily through index trackers on platforms such as Hargreaves Lansdown and AJ Bell.
They can also get exposure to individual stocks listed overseas. This fact shouldn’t be ignored because there can be lucrative opportunities in overseas markets that aren’t available in the UK.
Look at shares in Nvidia (NASDAQ: NVDA), for example, which are listed in the US. Over the last 10 years, they have risen from about $0.80 to $176.
That represents a gain of around 22,000%. Putting that into money terms, it would have turned a $2,000 investment into $440,000.
I don’t think there are any UK stocks that have delivered that kind of return over the last decade. If there are, there certainly aren’t many!
What has driven these gains? Well, Nvidia makes high-powered computing equipment and this has been in high demand as AI (eg ChatGPT) has gone mainstream.
This has led to soaring revenues and profits. For example, last year, the company generated revenue of around $130bn versus $11bn five years earlier.
It’s worth pointing out that the stock hasn’t risen in a straight line. Nvidia has historically had a very volatile share price in which 30-50% pullbacks are the norm.
At times, the company’s growth has slowed (or investors have worried about growth slowing). And this has led to large falls.
Patient, long-term investors have been rewarded though.
Is this stock worth a look today? It could be – realistically the AI boom is probably just getting started.
Personally, however, I’m waiting for a better buying opportunity. Right now, I’m seeing more compelling opportunities in the market.
