EquitiesMany people save with a bank or building society deposit account. However, this only provides a small amount of interest and no capital growth. Investing in the stockmarket over the long term has outstripped the returns provided by a bank or a building society* and may therefore provide a better route to meeting your investment objectives. Please remember that past performance is not a guide to future performance, prices may go down as well as up. Also, in a bank or building society up to £85,000 of your capital is secure, unlike an investment in the stockmarket where you may not get back the amount you originally invested.**
When you buy equities, or shares, you are actually buying a part of the company. All companies are subject to market forces, such as competition, and their share prices can grow or decline. As your share makes you a part owner in the company, your investment will grow or decline accordingly in line with the share price of the company. An equity investment is therefore less secure than a bank or building society investment but it offers the prospect of higher long term returns.
When you invest in an M&G fund, you are investing in all the companies that are held within that fund. The risk of investing in the stockmarket is therefore reduced by spreading your investment over a number of companies, rather than being tied to just one company.
We believe the case for long-term equity investing is as compelling as ever. Companies with solid business models and strong cash-generation prospects are likely to enjoy a competitive advantage in difficult economic times.
In our view, the best returns from equity investments will come from companies with clear corporate strategies, strong finances and hard-to-replicate assets. Above all, they must have experienced and talented management that can see them through the current downturn and to make them stronger on the other side. Our fund managers look for companies with the best management, with sound plans, who we trust to see those plans through.
Over the past 20 years UK equities have achieved an average annual return of 8.4%***, and although there can be no guarantee that UK equities will continue to perform as well over the next 20 years, to gain the full benefit of equity investing, a long-term approach is essential. In our view, the UK stockmarket continues to offer attractive long-term investment opportunities.
When investing do not base decisions on past performance of stockmarkets. Share prices may fluctuate and you may not get back your original investment. These examples demonstrate the impact of long-term equity investing and are based on stockmarket information; they may not match the experiences on investing into specific funds.
*Source: Datastream and M&G Statistics, income reinvested as at 31.07.12.
**Financial Services Compensation Scheme as at 31.12.10.
***Source: Datastream and M&G Statistics, income reinvested over 20 years to 31.07.12.
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