Here is the average return from the UK FTSE 100 index over the past 20 years

Recently, I tested the performance of FTSE 100 for the past 20 years. I wanted to see how the UK blue-chip market index has performed over the long term.

Interested in knowing what kind of return the index has produced over this period? Read on to find out.

My analysis

My analysis focuses on the gains produced by the index over the past 20 years calendar years. So my calculations do not include dividends or index dividends produced in 2024 (the index is up 6.5% in the first nine months of the year).

And I focused refund amount every year. These are profits and dividends. It is worth noting that for the FTSE 100, dividends are a major component of total return. Currently, the yield on the index is around 3.3%.

Average returns

When I crunched the numbers, I found that over a 20-year period, the Footsie returned a total of 241%. That equates to about 6.3% per year.

Now, an annualized return of 6.3% over 20 years is not a disaster. But let's face it, very little.

It is often said that stocks as an asset class usually provide returns of around 7-10% per annum over time. Well, the FTSE 100 hasn't reached here in the last two decades.

The taker

For me, there are a few takeaways from this analysis. The first is that when investing in shares, it is important to build a diversified investment portfolio that includes more than just the FTSE 100 index fund.

If investors want to achieve returns of 7-10% per year in stocks, they need exposure to different areas of the market (eg US stocks, small caps, etc).

Another is that, with the Footsie, investors may be better off picking individual stocks within the index instead of owning the index as a whole. Because many Footsie stocks have generated the highest returns for investors over the past 20 years.

One example of a stock that has done well for investors during this period is a company that provides food and support services The Compass Group (LSE: CPG). It has been a member of the FTSE 100 since 2001.

In the 20-year period until the end of 2023, its share price has increased by approximately 430% (an annual return of approximately 9%). Investors also received dividend returns of around 1-2% over most of this period, meaning the total return was over 10% per year.

Of course, no one knew 20 years ago that this stock would provide such great long-term returns. But there were indications that this company would be a good investment.

One was that it provides essential services (catering, cleaning, etc.). Often businesses need their services on an ongoing basis.

Another was that it has a high rate of return (high return on investment). Companies with high profits often turn out to be winning investments.

Now, I'm not saying that investors should rush out and buy this stock today. Currently, its value is very high. Meanwhile, a sluggish economy may slow its top-line growth.

But there are plenty of high-quality stocks in the Footsie that look attractive right now. And this can be worth considering as a long-term investment.