The nation may be gripped by royal wedding fever but there is only one highness I am interested in today, and that is the one happening on the FTSE 100.
Raise the roof!
On Thursday the benchmark index of UK top companies closed at a record high of 7,787, and now has the ‘psychologically crucial’ barrier of 8,000 in its sights. True, this is only nine points ahead of its previous high of 7,778, which it hit on 12 January 2018, but given all that has happened since then, it is still a moment to celebrate.
Few would have gambled on the FTSE 100 climbing so high when it crashed to just 6,888 on 26 March. If you had been brave enough to buy a low-cost FTSE 100 tracker or exchange traded fund (ETF) on that date you would be sitting on an investment gain of 13% before charges. I hope you didn’t sell in May, as the old adage dictates.
Fly the flag!
I am surprised at the scale and pace of the turnaround, but then, I am regularly surprised by what stock markets do, because their movements are impossible to predict. Traders who try to play the market in that respect, timing their entry in and out, quickly discover just how impossible. There are too many factors affecting performance, and market movements can only be explained with hindsight.
Analysts are pinning the recent surge on a stronger dollar, the rising oil price, weaker sterling and the postponed interest rate rise. However, if the index had fallen, they would no doubt have cited the stronger dollar, pricey oil, and slowing GDP growth which derailed the Bank of England’s interest rate plans. The truth is, nobody knows.
Crack open the bubbly!
The only way you should ever try to time the market is to invest your money AFTER it has dropped. That way, you have hindsight on your side. You know for certain the market is down, and shares are cheaper than they were. But you do not know whether markets will fall further, or when they will recover, although history shows that they always do, if you give them sufficient time.
I topped up my trackers in February, and although markets had further to fall, I am nicely ahead. Not that this really matters, given that I plan to leave most of my money invested for at least the next 15 to 25 years, possibly longer. Hopefully, the market will be a lot higher by them.
Bring out the bunting!
Even at yesterday’s closing high, the FTSE 100 is only 12% higher than it was on Millennium Eve 1999, when it closed the year at 6,930. However, if you had reinvested all your dividends over that time, your total return would be a more impressive 114%, as dividends make investors richer than ever. Also, most investors will have put money in at much lower levels, and be sitting on big capital gains as well.Â
Analysts had been predicting a bear market most of this year. Instead, we are getting a bull run. Raise a glass, wave a flag. All this and a royal wedding too.