David Prosser: Investment history rewritten?

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The Independent Online

Outlook: Successive generations of Britons have grown up accustomed to received wisdom about investing: that while share prices can both rise and fall, over time equities tend to rise – and to outperform other asset classes. Well, as the feature on page 34 explores, that has certainly not been the case during the first decade of the 21st century.

Where does that leave financial planners, who have routinely advised savers to turn to the stock market when working towards long-term goals such as repaying a mortgage, funding a pension or putting a nest egg aside for the kids?

The short answer is that for genuinely long-term projects, the stock market should remain the asset class of choice for most people. Figures from Barclays Capital show that over the past 100 years, shares have outperformed cash in 93 per cent of 10-year periods and beaten bonds 83 per cent of the time. In that sense, the last decade has been a blip.

That, however, is a little glib. As every investment advert reminds us, past performance is no guide to the future. Even if it was, with people's faith in equities having been shaken more dramatically than at any time in living memory, we need more than statistics to comfort us.

Try Warren Buffett for size. There are so many witticisms to choose from, but one thing the Sage of Omaha once said rings especially true today. "If you're an investor, you're looking on what the asset is going to do," he said. "If you're a speculator, you're focusing on what the price of the object is going to do, and that's not our game."

Nor should it be the game of long-term savers. The value of companies that are well run and offer good products and services will eventually rise again.