5.4.1 What is the best long-term investment?
We know from the oscillations of equity markets that capital invested in shares is at high risk of losing value – although, as you see in the data presented in these tables, over long periods of time the performance of shares (equities) normally outperforms that of bonds (gilts) and cash deposits (savings accounts).
The uncertainties related to investments in equities – the reality that the prices of shares do move up and down – is highlighted by the chart that you saw in the previous discussion, which shows the movement in the FTSE 100 (the index based on the share prices of the 100 largest companies listed on the Stock Exchange) between 1990 and 2017.
The three tables here show the findings of a detailed study by Barclays into the differential performance of investments over the medium to long term. The findings are clear: the markets in shares (equities) may be volatile at times but over the long term the historical evidence is that they outperform other forms of savings and investments.
Table 8 Average real annual returns for UK equities (shares), gilts (government bonds) and savings accounts
| 1899—2015 | 2005—2015 | |
|---|---|---|
| UK equities | 5.0% | 2.3% |
| Gilts | 1.3% | 3.0% |
| Savings accounts | 0.8% | -1.1% |
Table 9 Equity outperformance of gilts (government bonds) and savings accounts in defined time periods, 1899—2012
| Time period assets held | ||
|---|---|---|
| 5 years | 10 years | |
| Percentage of times equities outperformed gilts | 72% | 79% |
| Percentage of times equities outperformed savings accounts | 75% | 91% |
Table 10 Value at the end of 2012 of £100 invested at the end of 1945, with gross income reinvested
| Nominal | Real | |
|---|---|---|
| UK equities | £2,265,437 | £28,232 |
| Gilts | £36,395 | £454 |
| Savings accounts | £20,535 | £256 |
OpenLearn - Managing my money
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