Today, more so than ever before, investing in shares represents one of the best ways for both wealth preservation and wealth creation. Since the Bank of England base rate has been at 0.5% since March 2009, compound inflation has eroded the real value of cash, thus serving to destroy people’s wealth.
Since March 2009 the FTSE 100 index has rallied from below 3,700 to hit an all time high of over 7,100, an increase of over 90%. In monetary terms this means that £1,000 invested would have increased in value during this period to be worth over £1,900 today.
The FTSE 250 index, comprised of the top 250 companies outside the FTSE 100, has also performed spectacularly over the same period. At the start of March 2009 the 250 index was trading at 5,831 points, and today it has increased by 200% to trade at around 17,500 points. In monetary terms £1,000 invested in the index in March 2009 would now be worth £3,000.
Conversely, keeping money in a bank account paying interest at the Bank of England base rate of 0.5% would have seen £1,000 earn compound interest to March 2015 of just £30.37, meaning £1,000 in March 2009 would be worth £1,030.37 in March 2015. Taking into effect the impact of compound inflation means that the purchasing power of your £1,030.37 is worth considerably less in March 2015 than your principal sum was in March 2009.
At DMT we believe in a balanced approach to asset allocation, which is why we believe it is prudent to hold a certain proportion of your wealth in cash. However, in order to grow your wealth we believe it is imperative to have exposure to the stockmarket through investing in shares.
Rather than simply investing in a tracker fund that seeks to mirror the performance of a specific market index, we firmly believe that now, more than ever, individual stock selection is key. For this reason, at DMT we provide our clients with bespoke advice to meet their financial objectives, undertaking due diligence on companies that we believe will offer our clients market-beating returns.