I’m of the view that for the average investor, buy-and-hold investing may be one of the best ways to grow personal wealth. And when it comes to financial returns, numbers speak louder than words. So to demonstrate how successful long-term investing strategy can be, every so often I like to look at a number of FTSE 100 shares to see how much a single £1,000 investment five years ago would be worth today.
This time around I have picked out the first 10 shares listed in UK’s largest index in alphabetical order, so that the list is not biased by my personal views. Let’s take a closer look.
What the numbers mean
Under each company name, I state how the price has changed over the past five years and what this change equates to in terms of the compound annual growth rate (CAGR). Then, I show how £1,000 would have fared over five years.
Please note that most FTSE 100 companies pay regular dividends that can also be reinvested. But the calculation below does not take into consideration the actual dividend or the reinvestment of that income. Past prices are as of mid-December 2014. Current prices are as of close on 13 December.
Finally, I have not factored in any brokerage commissions or taxes.
Share price has increased from 448.80p to 1,071.50p
£1,000 would have become £2,387.36.
Share price has increased from 1,309p to 2,202p.
£1,000 would have become £1,682.02.
Share price has increased from 1,193p to 2,134p.
£1,000 would have become £1,788.46.
Share price has increased from 744.50p to 929p.
£1,000 would have become £1,247.97.
Share price has increased from 1,159p to 2,313p.
£1,000 would have become £1,995.67.
Associated British Foods
Share price has decreased from 3,194 to 2,599p.
£1,000 would have fallen to £813.68.
Share price has increased from 4,565p to 7,217p.
£1,000 would have become £1,580.72.
Auto Trader Group
As the company went public in March 2015, the initial price dates from that date.
Share price has increased from 265.5p to 573.8p.
£1,000 would have become £2,161.53.
Share price has increased from 1,293p to 4,542p.
£1,000 would have become £3,513.16.
Share price has decreased from 495p to 415.80p.
£1,000 would have fallen to £839.87.
The Foolish takeaway
In short, of these 10 companies, eight have been good investments. The two exceptions are Associated British Foods and Aviva.
ABF has been in a downtrend since October 2017. And Aviva shares have been suffering since May 2018.
However, shareholders in both groups also receive dividends, (1.8% and 7.2% respectively). And that passive income would have made the loss in share price less painful, especially if those dividends were reinvested.
My Motley Fool colleagues regularly cover FTSE 100 and FTSE 250 shares as well as funds to consider adding to a diversified portfolio. They point out that the stock market returns about 7% to 9% annually on average.
I believe the numbers above indeed show that robust returns are likely to be achieved in the future too. And long-term investors in most FTSE 100 stocks enjoy dividend income as well.
If you are not quite sure which shares to choose, a low-cost FTSE 100 tracker fund might also be appropriate. The average dividend yield of the index is currently 4.5%.
Finally, you may want to talk to a financial adviser first before moving forward with a specific type of investment.
- The State Pension could have you working until 67. Here’s what I’d do to retire early
- The Tullow Oil share price has crashed 55% today. Here's what I'd do now
- Forget the top Cash ISA rate. I'd pocket 7.8% here
- This is how much £1K invested in BT shares 5 years ago would be worth now. Ouch!
- The Lloyds share price is rising - should you buy it and these election winners?
- Top shares for 2020
tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group, Associated British Foods, AstraZeneca, and Auto Trader. 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.
Motley Fool UK 2019