ago
Jill Treanor and Phillip Inman
Punters who invested 100 on the London stock market at the end of World War Iwould have been able to buy their dream millionaire mansion by the end of last year.
The gamble on stocks would have catapulted the punter into the exclusive six-figure club much faster than those who placed their money in British government bonds – known as gilts – or on cash, according to an analysis by investment bank Credit Suisse First Boston (CSFB).
But CSFB, in its annual equity/ gilt study, calculates that once the investments are adjusted for inflation, the 100 investment in 1918 would have become just more than 48 000 by the end of last year, rather than 1- million.
“After adjusting for inflation, the 100 invested in equities would be enough to buy a small house, the gilt fund a small, second-hand car for a student and the cash fund a weekend away for two,” said Steve Wright, an equity analyst at CSFB.
Before the adjustment for inflation, the 100 in gilts is worth only 13 315 after 80 years while the cash fund would be worth just 7 038. After inflation the gilts investment shrinks to a little more than 600, and the cash fund becomes a mere 340.
Between 1918 and 1962, CSFB’s stock market portfolio contained about 30 shares in the major companies of the day – the likes of textile companies, manufactures and drinks groups such as Distillers. After 1962, CSFB is assuming the investment is in the FTSE all-share index.
In 1918, 100 would have been about half the average yearly wage of a labourer. According to the British Office for National Statistics, the average weekly wage of a labourer was 71 shillings and 51/4 old pence – just less than 3,60 a week, which translates into approximately 185 a year.
While equity investments paid off over the 80-year period, CSFB pointed out that last year gilts were star performers in the benign inflation environment. Gilts delivered a 25% return – or 21,5% after inflation – and equities produced 13,7% last year, or 10,5% after inflation.
Between 1918 and 1998, equities produced an average return of 8% after inflation, gilts offered a 2,3% return, while a cash fund would have produced a 1,5% return.
After World War I, 100 would have bought a two-up, two-down terraced house, although most residential property was rented at that time.