Long-term Investments

if it were to be adjusted for inflation, should be divided by 3.3, making it around 75. This indicates that people who have held shares since 1970 have, on average, lost half the value of their capital in real terms.

240 Average annual level of

Financial Times 500 All-share Index

220 F . (April 1962 = 100)

200

180

160

14()

120

100

80

Average annual level of Retail Price Index (January 1974 = 100)

60

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 2000

(first 4 months)

Fig. 6.1

Three further dramatic conclusions can be drawn from the graph. First, people who bought shares in 1970 and sold out in the heady days of 1972, made a good profit both in money terms and in real terms. Second, those who bought in 1972 and sold in 1974 lost half their capital in two years. Third, people who bought in the recession of 1974, and were still holding the shares in 2000, saw their holdings just keep pace with inflation; but there was no real growth.


Growth And Inflation

The average rewards in the way of current dividends being comparatively low on ordinary shares, one would expect to find that the value of shareholdings would be rising otherwise why should people be willing to buy them? Of course, some shares have risen substantially, but the average movement in market prices between 1974 and 2012 has been only just sufficient for them to have retained their real value. The so-called growth element has been completely absent.

Several index numbers are compiled daily and published to indicate the general movement in prices. The best known of these indices... see: Growth And Inflation


Personal And Business Finance 2017

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