£5 declines 96% since introduced, but up 8,443% if invested


Originally published at: https://whichinvestmenttrust.com/5-declines-96-since-introduced-but-up-8443-if-invested/

The modern £5 note was introduced in 1957, since when its value has been decimated by inflation, but we’re run some numbers and reveal that the stock market would not only have beaten inflation, but would have left a very tidy profit. Sixty years is a very long time, beyond the investment horizon of most…


So we’re comparing the capital-only real return of one asset against the nominal total return of another…


…and why not @arkwelder ? I don’t get why you object to this.


If you’re comparing returns then they should all be of the same type: real or nominal, i.e. adjusted for inflation or no adjustment.


I can’t work out if I’m being stupid or not @arkwelder because I can’t see what is wrong with looking at how an investment has done compared to cash.

I might be missing something of course, I am not as experienced an investor as you are. I always try and read your posts on here because they are good and I often learn something. I just can’t figure out what I’m missing here.


No problems at all with the returns from investments being compared to those on cash, just with the way in which it’s being portrayed. Inflation raises prices, meaning that your assets lose purchasing power. This adjustment, i.e. the real return, has been applied to the fiver, but it hasn’t been done to the return from equities. So it isn’t really comparing like with like. And the other aspect that is usually ignored is that cash earns interest (or is that just a distant memory…?!), and this - when compounded - means that the fiver hasn’t delivered a loss of 96% over the years. It’s a bit like saying that the FTSE hasn’t risen much since the year 2000, but that is just the capital performance and ignores the dividends that have been paid out - and there’s no adjustment for inflation either!

The result would still be that equities have delivered a better return than cash over the years, but the gap in the figures will be less eyecatching.