The £1 coin is 40 years old. It was released in 1983, when David Bowie topped the charts with the classic hit Let’s Dance and Margaret Thatcher was re-elected in a landslide victory.
The round pound replaced the £1 banknote after a decline in purchasing power meant that the £1 currency unit was more suitable for a coin than a note. The paper banknote could only circulate for an average of nine months before degrading, so the Treasury approved its replacement with a coin that could be passed on for decades.
More than 2.8 billion £1 coins were issued between 1983 and 2017, after which the 12-sided coin replaced the round coin which proved too easy to counterfeit.
Yet this humble coin has lost more than two-thirds of its purchasing power since it was minted, with a purchasing power of just 30 pence when kept in a piggy bank or on the back of a bank, according to stockbroker AJ Klok’s Laith Khalaf.
That’s despite annual sales price increases exceeding 10 percent only three times over the past 40 years: in 1990, 2022, and again this year — currently at 10.1 percent. It means you would need £3.17 to buy something today that cost £1 four decades ago, according to figures from the Bank of England. Khalaf says, “This shows the damage inflation can do to your purchasing power. But it is possible to fight inflation by investing your money and being patient.’
If that £1 coin had been kept in a bank account, invested in the stock market or used to buy property, it would have kept pace with inflation and in many cases made a healthy profit. But which asset would have generated the highest yield?
The stock market wins
The UK stock market has proven to be the best place for your money over the last 40 years. The average fund investing in UK stocks has returned 3,185 per cent over that time, growing an investment of £1 in 1983 to £32.85 today. If inflation is taken into account, your investment would be worth £10.02, according to Khalaf’s analysis.
Inevitably, the more risk you take, the higher the potential rewards. While the stock market is a much more volatile investment than gold or real estate, investors are paid handsomely for taking on that extra layer of risk.
It is critical to invest for a long period of time as this will allow you to smooth out any short term bumps and downturns. For example, investors will have seen a 55 percent peak-to-trough drop during the 2008 global financial crisis and a 25 percent freefall in the three months to the end of March 2020, when the pandemic rocked markets.
However, those who left their invested money would have seen it recover its value and climb higher and higher. An investment in the typical UK equity income fund, which invests in high-dividend companies, would be worth even more, at £12.99 to £42.60 in nominal terms.
This reflects the long-term compounding strength of dividend rolling, says Khalaf.
Early investors in the technology revolution are today’s big winners and outperform all investments. The average technology fund has earned back a whopping 6,431 percent. Share prices of today’s global tech powerhouses have skyrocketed since they entered the market. Your £1 invested 40 years ago would be worth £19.92 now – even after inflation.
Shares in Microsoft, for example, have risen from $0.1 when they were first issued in March 1986 to $304.40 today. If you had invested £1 in the company’s stock in 1986, it would be worth £3,044 today, not taking inflation into account.
Khalaf says, “The more risk taken, the higher the rewards, albeit with bigger downdrafts along the way.
Indeed, many established technology investors will still bear the scars of the dot-com crash of the early 1990s. But even those more conservative investors can take some heart in the fact that more prudent investments, such as a well-balanced fund, have still beaten inflation, given enough time to increase returns.”
If you put £1 in the global stock market, which offers investors more diversification, your money would still have grown to £28.90 or £8.81 if you factor in inflation.
Current sustained inflation is expected to ease by the end of the year, but Khalaf advises savers to plan to grow their nest egg ahead of inflation, and those willing to put their money aside for the long term should need to think about harnessing the power of the stock market.
Property owned
Real estate has long been known as one of the most reliable investments. Every £1 invested in a private home in the UK in 1983 would be worth £11.90 today, according to Land Registry data. In real terms, that’s worth £3.63, as the value has increased three times faster than inflation.
Gold holds strong
Gold is known worldwide as a safe haven for investment and has lived up to this reputation.
The precious metal has come back 469 percent in 40 years. This means your investment would have grown to £5.69 – much faster than the price increases. In real terms, your investment would be worth £1.73.
Savings stimulated
The good news is that even if you left your money in an instant bank account, every £1 would still have beaten the price increases. The value would have more than tripled to £3.75 thanks to interest paid annually by the bank. If we exclude inflation at the time, your original £1 would be worth £1.14 today.
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