This week we celebrated the Queen’s official birthday. It’s the ideal time to look back over the last 90 years – and to see if there are any lessons to be learned for the future.
The world was of course very different in 1926. The population of these islands and the world was far smaller than it is now, and a higher proportion of people were manual workers, with mining and steel major industries in Wales. Life expectation was considerably shorter at around 65 years, and relatively few people owned their own homes.
The 90 years since have been turbulent, with the Great Depression of the 1930, world war, the loss of empire – and of course the ever increasing impact of technology on all our lives.
The stock exchange
But despite all the changes, some things have remained surprisingly constant – including the performance of the stock exchange. Many major political and economic crises have come and gone during the Queen’s reign, but equities have been remarkably resilient.
Throughout the ups and the downs, £100 invested in UK shares on the London Stock Exchange back in 1926 could have grown to a total value of £14,045 today.
That increase – of more than 140 times the original capital value adjusted for inflation. – includes the powerful effect of re-investing dividends along the way.
Surprisingly, it also compares favourably to inflation over the nine-decade period. Price inflation, measured by the weekly shopping basket has occasionally run rampant (for example in the 1970s), but on average the annual average inflation rate has run at just below 4pc.
Over the decades, annual returns on British shares have averaged almost 9pc.
The returns investors’ have enjoyed have not been quite so smooth however, and there have been some troughs among the towering peaks.
In the Queen’s first 50 years growth was relatively steady. Stock market investment continued to provide returns even during the Second World War, but these were modest. During her majesty’s first half century period, the initial £100 investment would have grown to just under £2,000.
The real growth on the investment would have been made from the mid 1970s onwards.
From there, the £12,000 point at the turn of the millennium would have been reached in around 25 years of growth, only interrupted by events such as 1987’s “Black Monday” crash.
The 21st century
The 21st century has seen dramatic volatility in share prices, with two major crashes.
It began with the bursting of the tech bubble at the turn of the millennium, where the capital value would have fallen again to below £8,000, before recovering to above £12,000. The 2008 crash saw the investment fall to £9,000, before recovering to its value of £14,045 today.
The buy and hold approach to equity investment, looks vindicated – at least if you can hold for a long enough period.
What about house prices?
House prices have risen twice as fast as earnings in the Queen’s lifetime, according to analysis from the New Economics Foundation. Earnings and house prices were in lockstep since the Queen was born in 1926 and closely correlated until the mid-1980s, when the financial deregulation of the 1970s saw the relationship break down.
This deregulation of the credit market kick-started a shift towards mortgage lending over other bank types of bank lending, with domestic mortgage credit expanding from 40 per cent of GDP to 60 per cent since the 1990s.
What about the future?
You don’t need a crystal ball to see that Wales – in common with the rest of the UK – has grown far wealthier over the last 90 years. Despite the spiralling costs, house ownership has become the norm and living standards have improved for all sections of society.
The crystal ball would be useful to see if the trends will continue, however. Investment looks proven as a long term strategy, but if house prices continue to rise, they will have a major impact on personal wealth, with more and more income diverted to providing a home.
Perhaps the best way to prepare for a future which can’t really be predicted is to get professional investment advice, and develop a strategy which can improve your financial outlook – whatever the future holds.