FTSE vs. UK Property vs. Gold vs. Cash

This article reveals the performance of the FTSE 100 index, UK property, gold, and cash, between July 2002 and July 2012, i.e. a ten year period.

FTSE

Over the past ten years the FTSE 100 index has risen from 4246.20 to 5,635.30. Therefore £100,000 invested in the FTSE in 2002 would now be worth £132,713, a 32% profit. However, that’s in nominal terms.

Once you factor in inflation, as measured by the Retail Price Index (RPI), that £132,713 figure is slashed to £96,424, which equates to a loss of 3.58%.

Property

Over the past ten years the price of the average UK home has risen from £108,818 to £164,389. Therefore, in nominal terms, £100,000 invested in UK property ten years ago would now be worth £151,068, a 51% profit.

However, once you factor in RPI inflation, that £151,068 figure is cut to £109,760, which equates to a rise of just 9.76%.

Gold

Over the same ten year period, the price of gold has risen from £195 an ounce to £1,035.20. Therefore £100,000 invested in gold in 2002 would now be worth £530,851, a 430% profit.

Once inflation is factored in, the £530,851 figure is reduced to £385,695. However this still equates to a rise of 285%.

Cash

If in 2002, you had put the same £100,000 under the mattress, it would now only be worth £72,656. In other words, over the last 10 years the British Pound has lost 27% of its value.

Conclusion

Looking back over the past ten years it is clear that gold has been a much better investment than the FTSE 100 index, UK property or cash. What this article shows is that during a period of inflation, albeit only moderate inflation, the nominal value of assets quickly gets eroded. Therefore nominal investment returns are much less relevant than real (inflation adjusted) returns.

Looking forward to the next 10 years I believe we are entering a period of even higher inflation, perhaps rivalling that of the 1970’s, and in this environment gold will continue to outperform other assets. The primary reason for this is that gold provides the ultimate hedge against inflation, and capital preservation will likely take priority over capital gains.

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