A lesson from history: how sensible investing could have made you a million

3 February 2016

Those who had saved their full annual allowance into a Personal Equity Plan (PEP) – the precursor to the modern individual savings account (Isa) as we know it – and then an Isa since 1987 could now be sitting on well over £1 million, according to Fidelity International.

That’s a total of £242,520 invested for a return of £1,289,687.

Read our guide on how to pick an Isa platform.

However, it’s worth noting that this would only be the case if the saver had invested solely into the FTSE 250, which is the index that tracks the UK’s 101 to 350 biggest companies, rather than the 1 to 100, which is the job of the better known FTSE 100.

For the record, those investing into the FTSE 100 would have had relatively paltry returns of £628,969 and those buying into the FTSE All Share, which tracks the fortunes of 1,000 UK-listed companies, would be looking at £680,489.  Nothing to be sniffed at, but you’d only be buying 3 Ferraris rather than 6.

This isn’t a case of saying ‘I told you so’, rather, a way of illustrating that regular investing can carve the way to staggering gains as long as you save methodically, making it a lifetime habit rather than something done in the event of a windfall or other good financial luck. After all, it’s not as though the years 1987 to now were in any way unusual - topsy-turvy and maddening, yes, but, in the bigger picture, business as usual.

The other point to take from this is that medium and smaller-sized companies can be a safer bet than their larger and better-known brethren.

As Tom Stevenson, investment director at Fidelity says: “The outperformance of smaller companies reflects a combination of factors. In part it is a symptom of Jim Slater’s famous adage ‘elephants don’t gallop.’

"In other words, it’s easier to grow smaller companies rapidly than larger ones… the FTSE100 index is biased towards banks, pharmaceuticals, oil and gas and commodities, all of which at different times have been indifferent performers.”

If you haven’t invested before and you do fancy it, read our article ‘Get investing in 2016’.


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