The FTSE 100 at 40

The FTSE 100 at 40

Known colloquially as ‘the Footsie’, The FTSE 100 launched 40 years ago on 3rd January 1984. The index of the biggest 100 companies on the London Stock Exchange has witnessed and reflected so many changes.

Nigel Lawson was Chancellor under Prime Minister Margaret Thatcher. The index reflects opportunities for industry in an environment where money grew still more money. It has combined assets of £1.9 trillion, compared to the £165.6 million capitalisation available in 1984.

In general, it reflects modesty rather than excitement, as trackers ride the relatively safe path amongst the ‘slow performers’. 26 stalwarts from the 1984 index remain, including Barclays and Lloyds Banks, Sainsbury’s and Tesco and BAT.

The FTSE 100 turned 40 on 3 January 2024. The following, details some of the milestones that affected its noble journey.

From its initial launch value of 1,000, the FTSE100 has climbed to 7,721.52 at the start of its 41st year on 3 January 2024. That’s 654% rise, equating to an annual growth rate of 5.2%. Inflation over the same period, as measured by the Retail Prices Index (RPI – the CPI does not go back beyond 1988) averaged about 3.7% a year.

Like most indices, the FTSE100 measures only capital values and does not include dividends. When dividends are considered, the index reflects the compounding effect.

Compounding returns’ or ‘compounding interest’ is what Einstein refers to as the 8th Wonder of the World – but what exactly does it mean?

‘Compounding’ in this sense means getting a return on your investment to increase its total value, then building a further return on that, again and yet again. This ‘compounding’ effect increases the total value of your investment further still.

Let’s take a look at ‘the best of the old gang’:

The diagram shows the annual compound rate of return for shareholders with dividends re-invested since 1984:

‘Every little helps’.

As you see, dividends are still a key factor in the returns from the FTSE100 today, with the Index offering a dividend yield of close to 4% (Source: Henson Crisp).

Re-investing dividends isn’t ‘clever’ as such. It’s not new. And it isn’t racy and exciting. But it is a welcome reminder that in the world of investment, doing the boring things without getting bored, can offer a serious amount of upside!