The FTSE 100 index doesn’t are likely to ship big returns for buyers. In comparison with different main inventory market indexes such because the S&P 500 and the Nasdaq 100, returns are sometimes just a little underwhelming.

Nonetheless, the Footsie’s returns over the past 5 years might shock you. Right here’s a have a look at how a lot £10,000 invested in a FTSE 100 tracker fund 5 years in the past can be price immediately.

10.5% a 12 months?

There are many totally different FTSE 100 tracker funds available on the market immediately. To maintain issues easy, I’m going to make use of the Vanguard FTSE 100 UCITS ETF (LSE: VUKG) as a proxy for such trackers.

I’m specializing in the ‘accumulating’ model of the ETF versus the ‘distributing’ model. The previous reinvests all dividends (a big element of FTSE 100 returns) whereas the latter pays them out to buyers.

5 years in the past, this ETF was buying and selling for £26. At this time nevertheless, it’s buying and selling for £43 – roughly 65% greater.

That works out to an annual return of about 10.5%. And it implies that a £10,000 funding 5 years in the past would now be price about £16,500 (ignoring buying and selling commissions and platform expenses).

The excessive returns defined

That’s a excessive return from the FTSE 100. The annualised return of 10.5% return is considerably greater than the 20-year common return from the index, which is just a little over 6%.

So, what’s occurring right here?

Effectively, again within the second quarter of 2020, there was loads of financial uncertainty as a result of coronavirus pandemic (which had simply began). In consequence, many FTSE 100 shares had been buying and selling at low ranges.

During the last 5 years, nevertheless, most shares have recovered (many have gone on to hit new all-time highs). So, anybody who invested within the FTSE 100 throughout the early 2020 weak spot has been rewarded financially.

This can be a nice instance of why it may possibly pay to comply with Warren Buffett’s recommendation and make investments when there’s a excessive degree of uncertainty and different buyers are ‘fearful’. Usually, shopping for shares throughout market weak spot can ship higher-than-average returns over the long term.

A possibility immediately?

It’s price declaring that there’s loads of worry throughout the funding group immediately given the excessive degree of financial uncertainty we’re confronted with at current.

Just lately, many buyers – each retail and institutional – have been dumping shares and piling into bonds and money. So, there may doubtlessly be one other main alternative for long-term buyers proper now.

Having mentioned that, there’s an opportunity that the market may go decrease from right here. So, I wouldn’t suggest going ‘all-in’ on shares in a single go. I Suppose buyers ought to take into account saving some money for any near-future corrections.

I additionally suppose there are higher investments to contemplate than the Vanguard FTSE 100 UCITS ETF and different Footsie trackers. The difficulty with these merchandise for me is that they don’t present a lot publicity to the expertise sector.

And that’s a sector that I believe buyers ought to have loads of portfolio publicity to over the following 5 years. In spite of everything, the world is simply going to change into extra digital within the years forward.