Spreadbetting broker IG.com have confirmed that over the last 5 years over 78% of their clients have lost money. Let that sink in for a moment. 5 years of toiling on the markets, trying to make your capital work for you, only to have finished down overall?
That’s insane.
Fact is, our very human nature prevents us from being a success. Holding onto losing trades too long or cutting winners too early is a result of our human psychology. We’re simply not built to perform well. This is why it is so incredibly hard to succeed out there.
Yet if you had bought and held the FTSE 100 over the last 20 years you’d have made an average 8.8% annual return. Couple that with a dividend re-investment policy at an assumed 3% annual yield and a further £250/month investment and over that time you could have turned £10,000 into £386,183.
That’s not a pie in the sky figure. That’s mathematical fact. At 8.8% compounded each year you can achieve a hell of a lot.
Am I suggesting we all go out and buy and hold the FTSE 100? No.
Whilst this might be a very good strategy for your nan or someone who simply doesn’t want to manage their own portfolio, it’s the absolute minimum you should be making.
It’s the minimum because you really don’t have to do anything for it. You just….buy and hold the FTSE. And when doing this can bring you 8.8% annual average return on your capital it shows just how insane it is to be LOSING MONEY stuck behind the screen all day.
However, the FTSE 100 is made up of a lot of poor companies unfortunately and only a very small handful of great ones. Being able to pick between the good and the bad can make a significant difference to the results.
In 2019 for instance the FTSE 100 rose 9% in value. However, my list of 31 UK stocks selected from the FTSE 100, 250, Small Cap, Fledgling and AIM index made a whopping 38% return.
And by May 2020, amid the coronavirus outbreak the FTSE fell as low as -22.4% when the 31 stocks i’ve picked only sat at just -7.7%.386