How We Became Wealthier During The Queen’s Lifetime

queens lifetimeRoyal weddings, anniversaries, births, these are occasions for national rejoicing and get huge international coverage. This week we celebrate the Queen’s official birthday.

It’s the ideal time to look back over the last 90 years – and to see if there are any lessons to be learned for the future.

The United Kingdom was very different in 1926.

The population was smaller, a far higher proportion of people were manual workers, relatively few people owned their own homes – and life expectancy was around 65 years.

Of course, times were changing fast.

Advances in medicine were helping us live healthier for longer, advances in technology were slowly starting to ease the backbreaking labour, and advances in society were at least starting to reduce poverty.

The wireless was followed by television, and the internet arrived.

Steady growth for 90 years

But despite all the changes, some things have remained surprisingly constant – including the performance of the stock exchange. War, political upheavals and economic crises have come and gone during the Queen’s reign, but equities have been remarkably resilient throughout the ups and the downs that included one or possibly two major depressions, several recessions and a world war.

£100 invested in UK shares on the London Stock Exchange back in 1926 could have grown to a total value of £14,045 today.

That increase of 140 times the original capital value adjusted for inflation includes the powerful effect of re-investing dividends along the way.

Surprisingly, it also compares favourably to inflation over the last 90 years. Inflation makes a nonsense of most figures.

Getting paid more than a pound or two a week was a dream for most working men in 1926. Price inflation, measured by the weekly shopping basket has occasionally run rampant, for example in the 1970s. On average the annual average inflation rate has run at just below 4%. Over the same period, annual returns on British shares have averaged almost 9%.

The returns investors’ have enjoyed have not been quite so smooth however, and there have been some troughs among the towering peaks. In the first 50 years growth was relatively steady. Stock market investment continued to provide returns even during the Second World War, but these were modest. During Her Majesty’s first half century, the initial £100 investment would have grown to just under £2,000. The real growth on the investment came from the mid 1970s onwards.

From there, the £12,000 point at the turn of the millennium would have been reached in around 25 years of growth, only interrupted by events such as 1987’s “Black Monday” crash.

The bursting of the tech bubble at the turn of the millennium, saw the capital value fall to below £8,000, before recovering, and the 2008 crash saw the investment fall to £9,000, before recovering to £14,045 today.

So equity investment seems to work – at least if you can leave your investment for a long enough period, and don’t need to take it out at the wrong time.

What about house prices?

House prices have risen twice as fast as earnings in the Queen’s lifetime, according to analysis from the New Economics Foundation.

Earnings and house prices were closely correlated until the mid-1980s, when the financial deregulation of the 1970s saw the relationship break down.

This deregulation of the credit market kick-started a shift towards mortgage lending over other bank types of bank lending, with domestic mortgage credit expanding from 40 per cent of GDP to 60 per cent since the 1990s.

Property is now the most expensive it has ever been, and a house in London which could have been bought for £500 in the 1920’s and perhaps £5000 fifty years later could easily be £500,000 today.

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