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Those “FTSE hits new highs” lies

Here’s a rather encouraging headline from a newspaper yesterday: “Strong Vodafone puts FTSE in grasp of all-time high”. And here’s another one: “Vodafone helps lift FTSE100 towards new highs”. And another: “2014 could see the FTSE100 reach new highs”.

Seems like pretty good news for anyone with any money in shares, unit trusts or a pension fund. And that’s most of us. After all, it means our savings are going up, up, up. Yippeee, we’re all going to be rich!

But let’s do a ‘reality check on these rather excited headlines.

Here’s a chart of the FTSE100 (the index of Britain’s largest 100 companies) for the last 5 years

ftse100 5 year

Looks great! The FTSE100 really is close to its all-time high.

However, all stock-market indexes are what we call ‘nominal’ indexes. They are not adjusted for inflation. Here’s the FTSE100 for the last 30 years with both the nominal line (red) which goes up, up, up to the supposed “new record high” and a line (blue) showing the FTSE100 adjusted for inflation. This goes up, up, up for 17 years and then down, down, down for 13 years

ftse100 30 years RPI

In fact, in terms of real purchasing power (inflation adjusted) the FTSE100 is nowhere near any record highs. It would actually have to go above 10,000 to reach a new record. Yet journalists get away with writing this misleading garbage and suckers think ‘oh, let’s put our savings into shares, unit trusts and pensions because they’ll grow our money’. And all the stockbrokers, unit trust managers and pension fund managers take a huge cut of savers’ money and become rich beyond most savers’ wildest dreams.

In real (inflation-adjusted) terms, the FTSE100 has lost over 30% of its value over the last 15 years. That should worry anyone with any money in shares, unit trusts or pensions. But it won’t worry the CEOs of the FTSE100 companies that in 15 years they’ve destroyed over 30% of the value of the companies they run. After all, over those 15 years, the average remuneration package for a FTSE100 CEO has shot up from £1.1m to over £4.1m.

It’s a great life – if you’re the CEO of a FTSE100 company, a stockbroker, a unit trust fund manager or a pension fund manager. It’s maybe not so great for the rest of us.

If you want to find out more about THE GREAT SAVINGS AND PENSIONS SCANDAL then why not come along to the talk I’ll be giving in Central London on the evening of Monday 24 February? Details are here: www.ercouncil.org

1 comment to Those “FTSE hits new highs” lies

  • Andrew Baxter

    If you allow for the fact that better performing stocks automatically replace poorer performing ones as they fall out of the top 100 then the situation is even worse.

    For a true comparison you need to allow for inflation AND also compare the same set of 100 stocks (as far as possible allowing for mergers and so forth).

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