The FTSE 100 might be up 6.5% since the start of 2019, but we’re still looking at an overall 9% fall since 2018’s peak in May as it struggles to keep its head above the 7,000 point level.
And in the 19 years since the start of the century, through the banking and Brexit crises, the UK’s top index has risen by only 15%. Even cash in a savings account would have beaten that.
Don’t switch to cash
But saying that, I’ve deliberately left out one key factor — and that’s because it’s what many people do when they look at the headline index performance.
What I left out is dividends, and they’ve been plodding along nicely at around 4% per year for most of that time, which beats the pants off anything a cash ISA has to offer.Â
Even better, dividends are rising. Forecasts suggest a record-busting year in 2019, with the FTSE 100 set to deliver 4.9%. Opportunities like that don’t come along very often.
An average dividend yield of 4% per year since the start of 2000 would have doubled your money, even without any gain in share prices.
Don’t sell your favourite shares
So some of your shares have fallen, and you don’t know what to do about it? It happens to even the most experienced of investors, and it’s not nice going to bed knowing that you’ve had a losing day, week, month or more.
Right now, my biggest loser is Premier Oil, which is registering a very red 23% loss since I bought in 2015 — and I don’t have a penny in dividends to make up for that. But why aren’t I selling?
When I re-examine Premier Oil, I don’t find anything different in the original investment case, and I’d buy the shares today if I didn’t already have them. Besides, since their low point, the shares are gradually recovering, and I’d have missed out on that.
If you’d sold out of banking shares in the financial crisis, you’d have missed the subsequent recovery. And the same goes for housebuilders (and many other shares) in the aftermath of the Brexit referendum.
Remember the idea that the aim of investing in shares is to buy low and sell high? Why, then, would you sell shares in good companies simply because they have fallen in price? That would just be guaranteeing the opposite.
Don’t stop investing
I reckon times of stock market pessimism are the best times to be buying, not selling — nobody ever got rich by selling when their shares were trading at rock-bottom prices.
But shouldn’t you be a bit more cautious? I’ve had people tell me they’re holding back their investment cash at the moment, waiting for economic uncertainty to settle and for confidence to return to the markets.
But wait a minute. What they’re saying is they’ll hold on to their money and wait for prices to go up before they buy! That doesn’t make any sense at all to me.
No, I say just carry on with your regular investments, and relish the fact that you’re getting more for your money and securing fatter dividends than usual.