FTSE 100 Slumps 15% in 16 Years: Are Shares A Waste Of Time?

Investing in shares is often viewed as an activity from which it’s possible to consistently make a high return. However, since the year 2000 the FTSE 100 has fallen by 15% and other assets such as property and even cash have proven to be better investments. As such, it’s little surprise that interest in shares and pensions is rather lukewarm, with many individuals in the UK having sought to improve their retirement prospects via buy-to-let rather than by having a diversified portfolio of shares.

However, the headline fall in the FTSE 100 during the last 16 years doesn’t paint the full picture. Certainly, if you had bought at the start of the year 2000 and done no further buying, then you would be 15% down on your initial investment. But dividends during that period would equate to around 48% even if they weren’t reinvested and didn’t generate any further return. And if they were reinvested, then the total return for the 16-year period would be a much healthier 45% (this includes the 15% capital loss).

Low returns … or are they?

While a 45% total return in 16 years is still very low and works out as an annualised return of just 2.4%, the time period selected skews the results. In other words, the last 16 years have been a very disappointing period for the FTSE 100 and the reasons for this include the bursting of the bubble, the 9/11 terrorist attacks, the Credit Crunch and the current weakness caused by a slowing China and falling oil price. If a different time period were selected then it’s likely that the results would have been much better. For example, buying seven years ago would have led to a total return of around 90%, which works out as an annualised return of 9.6%.

Of course, there have always been challenges facing the FTSE 100. In the 1980s there was a major crash, while in the 1990s there was considerable uncertainty regarding the UK economy’s future following the ERM disaster of 1992. Despite such problems, the FTSE 100 roared onwards and upwards (following short-term falls) and had soared by 6.7 times from 1984 to the year 2000. Since then, though, it has been a rather poor place to invest.

Looking ahead, the future for the FTSE 100 is unlikely to be anything like its past. That’s because asset prices move in cycles and so the disappointment of the last 16 years is unlikely to be repeated. Evidence to support this can be seen in the fact that the Chinese consumer growth story is only just beginning, the US economy is back on its feet, the FTSE 100 is at a relatively low level and its constituents offer upbeat growth prospects at discounted prices. As such, far from being a waste of time, shares seem to be the asset to buy for the long term.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.