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What’s done best – cash, stocks or bricks and mortar? How popular asset classes have performed over the past 30 years

Share investors have raked in the best returns over 30 years but homeowners beat them during the period of rampant property price inflation since 2000, a new study of returns from popular investments reveals.

UK equities have delivered 1,433 per cent growth during the past three decades, or 9.9 per cent a year – but only if you steadily reinvested all your dividends.

If you invested in shares but siphoned off the income, you would still have seen your money grow by 433 per cent. But you would also have made 438 per cent from putting it in a cash savings account and reinvesting the interest (see table below).

And while we’ve become used to stellar returns from property in recent years, returns on bricks and mortar have only reached 402 per cent since 1985 – although that time frame is particularly unflattering for the property market.

The research, from finance services group True Potential, shows the importance of dividends to equity returns, and the value of reinvesting them.

Reinvesting dividends gives a huge boost to stock returns, and will help sustain your portfolio through periods of volatile or poor market performance, such as the years between 2000 and 2014.

Shares returns were outstripped by what you could make from property during that particularly rocky time, according to the research.

Halifax house price data for this period shows £100,000 invested in property brought in a 132 per cent return, whereas the same sum put into UK equities, even with dividends reinvested, made 83 per cent.

But during this turbulent period – which included the dotcom bust, the credit crisis and a housing crash – property and shares with dividends reinvested did both manage to beat inflation at 54 per cent, or 2.9 per cent a year.

Equities might emerge triumphant over the whole 30-year period in the study, but UK homeowners have enjoyed a huge surge in house prices since the 1990s.

This has prompted many to put money in bricks and mortar, triggering a massive buy-to-let boom and creating an army of amateur landlords looking to boost income at a time of low interest rates and make capital gains in the longer term.

‘UK equities produce a higher total return compared to cash and property,’ said Colin Beveridge, chief investment officer at True Potential. ‘However, they do deliver a more variable outcome year on year.

‘One of the benefits to be had from falling share prices is the ability to reinvest dividends at cheaper prices, which in turn drives a better financial outcome and preserves wealth in real terms.’

He added: ‘Equity investors and cash hoarders face two different risks over the long term. Savers in cash must rely on getting an above inflation return and be prepared not to spend any interest but compound it to preserve wealth.

‘As long as equity investors do not attempt to access their capital prematurely at inopportune times they do much better.’

Source: ThisisMoney.co.uk, 2016, Full Article Here

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