Do you remember 2020/21, when Covid-19 hit the stock markets? At their lowest levels in 2020, the UK FTSE 100 and the US S&P 500 indicators are down 35%. However, 2020/21 was a good time to buy shares, as returns have been going well since then.
But would I have done better five years ago buying the S&P 500 or investing in gold, one of the world’s oldest stores of value?
The S&P is rising
Over the past five years, the S&P 500 has jumped 70.4%. However, this capital gain does not include cash dividends – the normal cash return paid by certain companies to shareholders.
Adding dividends, the S&P 500’s return jumped 81.8%, turning $10,000 into $10,818. That works out to a compound annual growth rate of 12.7%.
Then again, as a British investor, I buy US goods using pounds sterling. The US index’s return in GBP terms over five years is 13.6% per annum. This equates to a five-year total return of 89.2% – still a good result for UK buyers of US stocks.
The gold rush
For many, gold is the ideal asset in times of crisis. First, it has several uses: as a store of value (usually in bank vaults), jewelry, and as an excellent conductor of electricity in electronics. Second, it is scarce: all the gold ever mined can fit into a cube with sides less than 23m.
As I write, the gold price stands at £3,484.50. This has increased by 178.5% in the last five years. That works out to a compounded annual growth rate of 22.7% per year – outpacing the S&P 500’s gains.
Of course, gold does not pay money, but these huge returns can cover this excess. Then again, with the S&P 500 worth around $60trn, its gains are enjoyed by a much larger pool of investors.
So, over the past five years, investors have made more money owning gold than investing in the S&P 500. And speaking of high-performing investments, here’s another hidden gem from the spring of 2021…
FTSE 100 star
As an older investor (turned 58 this month), my family’s portfolio is full of boring, old-school FTSE 100 and FTSE 250 stocks that pay large dividends.
For example, my family owns shares Lloyds Banking Group (LSE: LLOY), its stock has risen since 2021. As I write, Lloyds shares are trading at 96.68p, valuing the Black Horse bank at £56.7bn.
Over one year, shares are up 37.8%, easily outperforming major market indices. Over five years, this stock is up 135.6% – beating most UK and US stocks over the same period.
Also, the above returns do not include dividends, which Lloyds stock pays generously. Currently, its yield is 3.8% per annum, beating the broader FTSE 100’s yield of 3.1%.
Earlier this year, Lloyds shares were riding high, reaching 114.6p on 4 February. They have since fallen 15.6%, driven by the US-Iran war, rising energy prices, and fears of a recession. Of course, if the UK endures another recession, bank income, profits, and cash flows could be adversely affected.
That said, a sticky, inflation target prevents the Bank of England from cutting interest rates. This increases Lloyds’ interest margin, increasing its 2026 profit. And that’s why we’ll continue to hold fast to our Lloyds shares!
