On New Yr’s Eve 1999, the dotcom bubble was absolutely inflated. The FTSE 100 ended the 12 months at 6,930 factors. At market shut on 20 Might 2025 the index stood at 8,781 factors. That’s a achieve in additional than 24 years of simply 27%, which is fairly terrible.

It suggests £10,000 invested simply earlier than the century ticked over would now be value solely round £12,700. However the true potential is loads higher than that. And it’s all due to dividends.

The worth of dividends

The long-term common FTSE 100 dividend yield is round 3.5% a 12 months. So dividends would have added about an additional £8,400 to carry our whole up to £21,100. However what about reinvesting the money in additional FTSE 100 shares?

I’ve finished some calculations primarily based on reinvesting and compounding that annual 3.5%. And I reckon the dividend portion of the potential return since 1999 can be value £13,100. That may push our preliminary £10,000 up to £25,800.

And that’s for somebody unfortunate sufficient to have put down their complete 10 grand simply earlier than the largest inventory market crash of the century to date. The FTSE 100 fell 50% within the following three years.

How can we do it?

I believe it exhibits we will make good-looking income from investing within the London inventory market, even with poor timing. However we do have to comply with a couple of key guidelines. One is to reinvest these dividends. Then we have to keep away from common shopping for and promoting — even a few p.c a 12 months in prices might hit our beneficial properties.

And eventually, it’s all about the long run. I estimate it could have taken round 5 years for the FTSE 100 to interrupt even from the tip of 1999, even with dividends.

However how can we really do it with out spending many hours in deep research? One simple means is to purchase a FTSE index tracker just like the iShares Core FTSE 100 ETF (LSE: ISF)

Monitoring FTSE 100 shares

The fund spreads buyers’ cash in proportion to the valuation of the shares within the index. So it could come very near the FTSE 100 itself. And fees are low, with an ongoing annual cost of 0.07% and a transaction price of 0.05%.

I’d charge an exchange-traded fund like this as the most effective issues to think about for somebody opening their very first Shares and Shares ISA. It nonetheless leaves us susceptible to a inventory market droop, like the large one which opened the present century.

However we get diversification too, throughout all of the sectors available in the market. Anybody holding solely high-valued web shares on the finish of 1999 might quickly have been nursing losses of 90% or extra. Diversification can actually assist soften the blow of single-sector crashes.

Higher future?

It’s value remembering that the interval we’re taking a look at right here began on the peak of a inventory market bubble. And prior to now 20 years, beginning after the next droop, the FTSE 100 has managed a 6.9% common annual return.