The Murphmonster and Colin Hines put together their pensions proposal. Insisting that the stock market had made people nothing and therefore bonds were the way to go.
You might also recall that they didn’t include dividends in their returns to stock but they did include interest in their returns to bonds. It does rather make a difference:
The FTSE 100, inflated by this irrational exuberance, was perched at a peak of 6930 just two days before the Millennium New Year’s Eve celebrations.
Those buying into the stock market will have been horrified to glimpse the future and see that today it stands at 6466 – 7pc lower. It would have turned £10,000 into £9,137.
But that’s before dividends are included, as data collated by Hargreaves Lansdown shows. If you bought the right type of fund (accumulation rather than income – more is explained here) then £10,000 would have grown to £15,213.
It’s a paltry compounded annual return of 2.8pc, according to our sums. But add in inflation, based on the retail prices index, and the return disappears altogether. In fact, you would have lost £138 in real terms.
Anyone care to tell us what the inflation adjusted bond return was over the 15 years? Given the fall in long term interest rates it could be quite good for a fund that was in long bonds before that fall. But I rather doubt that it’s quite as good as against stocks as Ritchie and Colin told us.