Royal weddings are good for you, finds Fidelity International
As the nation prepares for the Royal wedding, Fidelity International has found some striking similarities between the economic and market backdrops now and in 1981 when Prince William's parents walked up the aisle.
It didn't feel like it at the time, but the Royal Wedding was a great time to invest in the stock market. Will it be this time?
The early 1980s also played out against a backdrop of spending cuts, rising unemployment, special taxes for banks and North-Sea oil producers, inflation, unrest on the streets and a new, untested government struggling to convince the public that its bold and unpopular plans were the way forward to a stronger economy.
While the royal wedding of Prince Charles and Lady Diana Spencer may have felt like a welcome distraction from the prevailing gloom, investors will hope that, just like 1981, 2011 turns out to be the start of an extended equity bull market.
Just as they are today, investors in 1981 would have been forgiven for turning their back on the stock market. Looking back, shares had failed to keep pace with the rising cost of living in the 1970s and, looking forward, the outlook appeared bleak. However, hindsight shows that the year of the Royal Wedding was a good time to invest.
The FTSE All Share began 1981 at a shade under 300 and barely paused for breath until 2000 when it was worth ten times as much. Although shares have been volatile in the past ten years, the 30 year return since Charles and Diana's wedding has been a very attractive 8% a year above inflation.
Whether or not this performance can be repeated, Fidelity believes its analysis highlights the importance of saving for the long term. The Barclays Equity Gilt Study shows that in 83 30-year periods in the UK stock market since 1899, the average annualised real (inflation adjusted) return, with dividend income re-invested, was 5.6% and there has not been one negative 30-year period on this basis.
Tom Stevenson, Investment Director at Fidelity International, says; "However bad the investment outlook might seem, staying invested over a long period of time has always paid off. The real, inflation adjusted, value of £1000 invested in 1981 with gross dividends reinvested is £9630 today. On that basis, there is not one 30-year period between 1899 and now when investing over 30 years has not provided a positive real return.
"At a time of rising inflation, the ability of the stock market to protect investors from its pernicious effects should not be overlooked. For most of the last century, shares with re-invested dividends have maintained the value of an investor's savings over a 30 year timeframe and given them a return of between 4% and 8% a year on top."