How much can I really make from UK stocks?
Can I make a lot of money from buying UK stocks? Many throw around a 10% return figure. That means each year, on average, earning a 10th back on whatever I stump up.
That’s not a bad target to have. It’s not an awful rule of thumb either. And the data the figure was based on goes back over a century. The problem? It’s based on American stocks. The usual data points mention the S&P 500 which returned an average 10.26% since its inception in 1957.
Long, long term
Those of us across the pond have a less-studied stock market and a harder time finding similar data. By comparison, the FTSE 100 began in 1984. That might be a fair few decades now but it’s not what I’d call long term. After all, the earliest form of the London Stock Exchange was opened by Elizabeth I. Its building burned down in the Great Fire of London.
I was therefore very pleased to discover a study from personal investing giant Vanguard, known for creating and popularising index funds and ETFs, on the exact data I was looking for. The study spanned the years 1900 to 2022. Over 100 years sounds long term to me.
Over those years, the annualised percentage return for UK stocks, not including inflation, was 9.18% a year. That’s pretty close to the American figure, if you ask me. And it turns one pound into 14 of them over 30 years.
One stark difference between US and UK stocks though is the performance of the premier index. In the States, the S&P 500 performs equally or even above the average of all stocks. In the UK, the FTSE 100 has underperformed, especially recently. The annualised Footsie return since its 1984 inception is 7.48%. These weaker returns have a lot of folks, myself included, looking at smaller UK stocks like those listed on the FTSE 250.
One to consider
One I’ve been eyeing is investment management firm Man Group (LSE: EMG). I don’t have the spare cash to buy it now, but the nature of this business appeals to me. It runs a collection of hedge funds, many being quantitative funds which use complex models and algorithms to see patterns in the markets.
Hedge funds have a high barrier to entry, a £1m minimum investment is often standard, but I can invest in Man Group and get exposure here by simply buying the shares. It’s a sector where artificial intelligence (AI) might have serious impact too and the group already has its own proprietary model it’s calling ‘ManGPT’.
Risk and volatility are the norm rather than the exception with this kind of trading, so I’d hardly say this stock was for everyone. But for those aiming to beat the long-term average of UK stocks? This could be one to consider.
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John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
