Stupid Question

simon1984uk

This is a stupid question and apologies in advance for asking it! I have been doing a lot of reading on investments and am close to getting started, but sometimes you can absorb too much and just want to clarify one point.

With the recent drop in the Ftse 100, I've been looking at the share prices over time.

On 10 April 2015, I can see the price was 7089. At the time of writing, the price is 6921. Does that mean if you had invested in an index tracker when it was 7089, your investment would be down?

Or am I confusing the price you can buy/sell at with the returns you would get from having your money in.

In other words, if you'd invested £10,000 on 10 April 2015, what would you have now?

I think I am overthinking this so all help appreciated!

Theta101

Excluding costs and any dividends your £10,000 would be worth £9,763.

And you could have received about 4% dividend per year, so add about £1,200.

http://www.hl.co.uk/shares/shares-search-results/h/hsbc-etfs-plc-ftse-100-ucits

Dox

Don't forget that index trackers don't all track the same index. You don't have to pick one which tracks the FTSE100.

simon1984uk

Thanks, can I just double check how you have calculated that?

Also, I see that on 30th December 1999, the price was 6930. So given that is pretty much the price now, am I right in thinking that if you had held your money in a Ftse 100 tracker since then, you'd pretty much be back exactly where you started?

Prism

In pure terms the FTSE 100 is currently lower than it was on 10 April 2015. However along the way had you been invested in an index tracker fund you would have either received dividend payments of around 3-4% per year (inc version of a fund) or those dividends would be used to buy more shares (acc version). Then the fund has charges which reduce its value and a tracking error which means it doesn't quite follow its index perfectly.

Best way to see is find an example of a fund that tracked the index of your choice and see what its value difference is between two dates. For example had you invested in the L&G FTSE 100 tracker acc fund on the 10 April then that £10000 would be worth about £11000 today - a 10% gain. Had you invested in the Inc version of the fund and then kept the dividends then you would be slightly down on your original investment however you would have the £1000 (dividends) to spend.

Play about with the charting tools on trustnet. Here is the L&G fund link https://www2.trustnet.com/Tools/Charting.aspx?typeCode=FLGBHTA,NUKX

Prism

simon1984uk wrote: »

Thanks, can I just double check how you have calculated that?

Also, I see that on 30th December 1999, the price was 6930. So given that is pretty much the price now, am I right in thinking that if you had held your money in a Ftse 100 tracker since then, you'd pretty much be back exactly where you started?

With dividends reinvested you would be about 85% up. Reinvesting dividends is a massive part of long term growth even if the dividends are relatively small like the US stock market

simon1984uk

Thanks Prism, that is what I was thinking. My plan would be to invest for the long term (20 years) on an accumulation basis, but obviously if I'd be in the same place in 20 years that isn't too appealing

So basically what you are saying is - if that is my goal, then the price now and 20 years ago doesn't matter, because I would have benefited from the compounding interest?

In other words, just because I could have bought at the same price in 1999 that I can today does not mean that I won't have made money during this period?

alewin

If you had invested £10000 in a Ftse 100 index tracker on 10 April 2015 then it would be worth £10989 today.

In an Ftse All Share index tracker it would be worth £11254.

That's with dividends reinvested and not including the platform fees you would have to pay.

simon1984uk

Thanks alewin, can you clarify over what time period that was over and how exactly you calculated it, just so I can double check my understanding?

Brynsam

Have a read of the 'Dummies' books on investing - they are very clear and aimed at novices (not dummies - that's just the series title!).

Tom99

[FONT=Verdana, sans-serif]To show you an actual example:

[/FONT] [FONT=Verdana, sans-serif]I bought an HSBC FTSE100 Acc on 9th Sept 2014 and the figures up to close yesterday are:

[/FONT] [FONT=Verdana, sans-serif]FTSE100 Index 6829 then 6921.94 now = + 1.36%

[/FONT] [FONT=Verdana, sans-serif]Unit Price 184.36 then 211.50 now = + 14.72%

[/FONT] [FONT=Verdana, sans-serif]So up over the index by 13.35% over the 3.5 year of ownership

[/FONT] [FONT=Verdana, sans-serif]That is the rolled up dividends less the fund charges.[/FONT]