​​​​​FTSE 100 crosses 9000 milestone as UK equities prove their worth

FTSE 100 milestone reflects steady long-term performance

The FTSE 100 recently surpassed the 9000-point mark, representing more than just a psychological milestone. It demonstrates the steady, reliable performance that has characterised United Kingdom (UK) equities over the long term, despite significant economic and political challenges.

Unlike the attention that usually accompanies United States (US) market records, this achievement has been largely overlooked. However, it conveys an essential message about the wealth-building potential of UK shares for patient investors.

The journey to 9000 reflects the cumulative impact of dividend reinvestment and compound growth. Over the past decade, the FTSE 100 has generated returns of approximately 60% including dividends, significantly outpacing cash savings accounts.

This milestone should remind us that equities remain one of the most effective long-term wealth preservation tools, particularly when inflation erodes the real value of cash holdings.

Cash savings underperform UK equities by significant margin

The FTSE 100's rise to 9000 highlights a fundamental investment truth that many UK savers continue to ignore. Analysis shows that cash savers have earned just one-seventh of the real returns achieved by equity investors since Individual Savings Accounts (ISAs) were introduced in 1999.

The gap in performance is substantial. Someone maximising their cash ISA allowance every year since 1999 would have missed out on more than £134000 in wealth creation compared to investing in the FTSE 100. Over 26 years, the index delivered 6.8 times higher real returns than the average cash ISA.

Despite this evidence, cash ISA subscriptions increased by over 722,000 in 2024, while stocks and shares ISA subscriptions fell by 126,000. This trend suggests that many UK savers remain trapped in a low-return mindset that undermines long-term wealth building.

The FTSE 100's global diversification provides natural protection against domestic economic weakness. Many constituents generate substantial overseas revenue, creating built-in currency hedging effects. Investment platforms have made accessing this diversification easier than ever.

Index composition reveals concentration of performance

The FTSE 100's structure provides insight into how market-cap weighted indices can amplify the impact of strong performers. The top ten stocks accounted for just 30.7% of the index weight at the start of the year, yet delivered 77.5% of the total gains.

This concentration effect demonstrates how a relatively small number of companies can drive broad market movements. The remaining 90 companies, representing nearly 70% of the index weight, contributed only 22.5% to the FTSE 100's rise.

The performance disparity highlights the importance of understanding index construction when making investment decisions. Market-cap weighting naturally gives more influence to larger companies, which can create outsized returns when these constituents perform well.

For active investors, this data suggests that stock selection could potentially deliver superior returns compared to passive index tracking. However, identifying the strongest performers in advance remains challenging.

UK stock market faces significant structural challenges

The FTSE 100's achievement comes against a backdrop of serious challenges facing UK capital markets. In 2024, 88 companies left the UK stock market while only 18 joined, representing a net exodus of established businesses.

High-profile departures include Arm Holdings, which chose overseas listings for better valuations, while Wise, Flutter Entertainment, and Ashtead Group relocated their primary listings to the US. These moves reflect broader concerns about the UK market's ability to attract and retain growth companies.

The underlying problem extends to investor behaviour. With £294 billion held in cash ISAs between 2022-23, the UK has developed a savings-first culture that directs capital away from productive investments. This represents a significant misallocation of resources that could support business growth.

The 0.5% stamp duty on UK share purchases creates an additional barrier to investment. This levy effectively penalises investors for backing British businesses, putting the UK at a competitive disadvantage compared to other jurisdictions.

Industry campaign calls for urgent market reforms

The challenges facing UK capital markets have prompted the launch of the 'Save Our Stock Market' (SOS) campaign, which outlines a four-point plan for reversing the market's decline.

The first proposal calls for scrapping stamp duty on UK shares entirely. This 0.5% tax is viewed as an outdated barrier that undermines the competitiveness of the UK stock market compared to other jurisdictions.

The campaign also proposes closing cash ISAs to redirect tax relief from cash savings into equity investments. The argument is that cash ISAs are hindering rather than helping people build long-term wealth, particularly given the substantial performance gap with equities.

Additional proposals include providing 20% income tax relief on UK shares held in ISAs for at least three years, similar to existing Enterprise Investment Scheme benefits. The campaign also calls for regulatory clarity around investment advice to remove uncertainty that prevents firms from promoting long-term investing benefits.

The FTSE 100's milestone above 9000 validates the approach of patient investors who have stayed invested through various market cycles. While it may not generate the excitement of US market records, it demonstrates the steady wealth-building potential of UK equities for those who maintain a long-term perspective.