I’ve been taking a look around some of our top FTSE 100 companies to see how well or how badly they’ve done over the past 10 years, and it has surprised me how successful some of the companies currently considered to be in a slump have been — looking back over a decade really does show up the difference between long-term investing and short-term gambling.
Sector in a squeeze
Take mining giant Rio Tinto (LSE: RIO) (NYSE: RIO.US). Along with the rest of the sector, it’s been under pressure from slowing Chinese growth resulting in depressed commodities prices. The share price has been erratic, and at today’s level of around 3,010p the shares have done nothing overall in nearly five years.
Dividends have been variable, too, and Rio is not exactly a cash-cow income stock.
But looking back over 10 years, the share price has grown by two and a half times — such that a £10,000 investment today would be worth £24,381.
Trashing the FTSE
So, despite a big spike in 2008, a crash the following year when the banking crisis hit, and then an uncertain recovery which has been held back by Chinese worries, Rio Tinto shares have easily outstripped the FTSE 100, which has only gained around 40% over the same period.
But that’s without dividends, and though they’re up and down and perhaps not the thing that steady income is made of, they would still have added an extra £5,604 in cash to your ten-year pot to give you £29,985. The dividends alone would have beaten cash in a savings account at the bank.
Even then, that’s not the maximum you could have had from your investment. If, instead of keeping the cash each year, you’d reinvested it in more Rio Tinto shares, you’d have added a final £1,208 to the total. That’s not as big a difference as some I’ve looked at, and that’s because with all the volatility the average price of Rio Tinto shares over the period has not been that much lower than today — and in the down years, there was less dividend cash to plough back in.
A great way to start the next decade
But it’s still a valuable bit extra, and it would have taken your 10-year investment of £10,000 up to £31,194 — you’d have trebled your money on a share that’s out of favour with many.
You’d also be heading into the next decade with 1,052 shares compared to the 814 you’d have initially purchased.