I DON'T often make my clients investment guarantees, but at the moment I feel fairly justified in suggesting that investors joining the stock market today are unlikely to see the kind of returns over the next five years that they have seen over the last five.
The plucky saver investing in June 2009, when the FTSE 100 Share Index stood at 4346, would have seen a capital return of 57.3 per cent and, if they had reinvested their dividends, would have received a total return of 91.2 per cent.
Clearly, the last five years has marked an extraordinary period, with global equity markets recovering from an extremely oversold position in the wake of the financial crash. Moreover, as confidence - investment and business confidence - has recovered, private investors are increasingly returning to equity markets, looking for greater returns than the paltry sums available from cash deposits and attracted to the potential returns available.
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However, look beyond the last five years - that is, after all, just history - and look forward. The global economy is recovering and, for those based in the UK (in general) and the South East (more specifically), there are visible signs that things are beginning to get better. People on the street have a bit more of a spring in their step and restaurants are busy. Sure, interest rates are going up - what direction did people think they were going to go in from 350-year lows? - but this is likely to be a gradual process, a series of little steps as the Bank of England is very reluctant to choke off the nascent recovery.
So, against this background, it is not that surprising that savers should have rediscovered some of their animal spirits. Are they misguided, doomed to forever do today what they should have done yesterday? We would argue not. Valuations are certainly not at the bargain basement levels of five years ago, but are not excessive. Dividend yields are good and rising and, buoyed by a more positive outlook for global growth, the prospects for corporate profitability are good. That said, there is a fair amount of "lead in the air" at the moment, as investors in the food retailing sector will be only too aware. This is why we always advocate to clients the virtues of a well-diversified portfolio of investments. Of essential importance, too, is the timescale of one's investment. Equity-based savings must be considered medium to long-term investments. There are always things that can happen that cause equity markets to tantrum, whether that is a geopolitical event or a natural disaster. Provided that you do not need the funds in the short term, this is not an issue in itself but it is time that allows good companies to recover.
The latest report from Capita Asset Services provides an interesting insight into the world of the private client. Individual investors' share of UK plc has reached 11.3 per cent - surprisingly far ahead of pension funds and insurance companies - while record dividends of £11.3bn are likely to be paid to shareholders during 2014. Dividends go up and down, of course, but have proved to be a beacon of stability over the last few years, and since 2007 private investors have received an astonishing £58.3bn in dividends. We are seeing significant new funds coming into portfolios, our clients are calm, and we remain positive that a well diversified portfolio of investments offers an attractive potential for growth in both capital and income over the medium to long term.
Rob Burgeman is Divisional Director, Private Clients, at Brewin Dolphin