King Charles III’s coronation will take place on Saturday 6 May 2023 at Westminster Abbey in London. Looking back to 1952 when Queen Elizabeth ascended to the throne, today’s economic environment isn’t too dissimilar. Whilst interest rates were low at around 2%, (although the make-up of inflation was very different back then) inflation had climbed to just over 9%, resulting in a cost-of-living crisis.
Since 1952 the UK economy has had eight recessions and had to weather numerous crises. The 1956 Suez Canal Crisis highlighted the UK’s loss of world power and following the relative economic calm of the 1960s, we had the oil shock of the 1970s and an IMF bailout; the 1980s deregulated and the 1987 stock market crash; the 1990s dot-com bubble; the 2001 US terrorist attacks; the 2008/9 global financial crisis; Brexit; and most recently, Coronavirus.
Despite this the UK economy has prospered and is today far bigger than it was back in 1952. Interestingly, over the years, despite all the uncertainty and volatility caused by the issues listed above, UK equity market returns have been impressive. According to data from the annual Equity Gilt Study produced by Barclays, over the last 70 years, the average annual return on UK equities has been roughly 12% (being 6.4% in real terms plus the negative effects of inflation, which averaged just over 5% per annum over the period).
We obviously understand that no-one has a 70-year investing horizon – we believe that a 15+ year investment time horizon is more appropriate, especially given today’s retirement and life expectancy. We can go back to April 1962 using the FTSE All Share Index and look how markets have performed over time.
The light blue bars in the below chart shows that despite impressive long-term returns, equity markets will, at some point in a calendar year, see negative returns – often of 5% or 10%.