You can't tell what an investment in the FTSE would be worth over time just by looking at the index. That ignores dividends which you don't get on gold.
Shares aren't essentially a Ponzi scheme or bubble. You can put a value on cash flows.
Share prices move en masse with the weight of money going in and out of the market. The fundamental value doesn't change because of that (though it might for other reasons). The Invesco Perpetual Income Fund accumulation unit price (which does include reinvested dividends) has increased by 75% since 2009, but it's still yielding around 3.5% - the price will go down if the market drops but the yield will increase unless dividends drop. If that happens now I'll sit tight. I don't need the money for 5-15 years and the dividends are buying more shares when the prices are low.
That's just an example - the results for a FTSE index accumulation fund over the same period are much the same though the volatility (what you might call the Ponzi effect) is higher.
Zero says timing is the key. It would be if you were psychic. In general you would likely do better long term to stay invested, given you will rarely sell at the highest price and buy at the lowest, the gains and dividends you miss are likely to make you worse off. In general of course.
see Smarter Investing by Tim Hale for the explanation and numerical evidence.
Gold might give you more of a hedge against another crash in share prices but if you'd been holding it since Christmas instead of shares you'd already be about 20% down.
Last edited by: Manatee on Tue 26 Feb 13 at 23:59
|
