Equities best for long-term investors

SHARES are still far and away the best long-term investment, according to a new study going back over more than 100 years.

The latest Global Investment Returns Yearbook by ABN Amro, published today, traces the returns on UK shares, gilts and cash deposits from 1900 to the present day.

Anyone putting £1 on deposit in 1900 and reinvesting all the interest would now have £176, but after allowing for inflation the value would have risen less than three-fold. Gilts bought for £1 would now be worth £247 and the real growth would be four-fold.

However, £1 of shares bought in 1900 would now be worth a whopping £14,988 if all the dividends had been reinvested. Even allowing for inflation, the shareholder would be sitting on £245.

Over the period, the average annual real return on equities was 5.4% compared with 1.3% for bonds and 1% for cash.

Last year did nothing to upset the long-term trend, shares returning 13.1% compared with 8.1% for bonds and 4.5% for cash. Star performers during 2004 were smaller company stocks.

The top two sectors were steel and metals (67%) and real estate (45%). The bottom two were information technology (minus 14.6%) and pharmaceuticals and biotechnology (minus 9.4%).

The survey also showed fund managers underperformed the stock market last year, achieving an average return of 12.6%. However, individual performances varied widely, ranging from 36% gains to a loss of 3%.