Despite the best efforts of the BBC and consumer press to scare us all with tales of doom and gloom, not all the news is bad if you take a long-term view. And that, after all, is what investments are all about.

The FTSE100, which covers the largest companies in the UK, has been running in its current form for just under 25 years now. Starting in April 1984 at a base of 1,000, it ended October at 4,377, well down from its high points of 6,930 at the very end of 1999.

At the time many commentators were concerned that most world stockmarkets were overvalued and that a correction was inevitable. Which, of course, is what happened during the early years of the century; with the FTSE100 falling to 3,287 in mid-March 2003. It then rose back again reaching 6,732 in mid-June 2007 before falling back to its current level.

Thanks for the history lesson, but why bother?
The reason for this background is twofold. First we wanted to demonstrate that markets are volatile and should be viewed only over the longer term; they are influenced by external events such as the credit crunch just as much as by such factors as the inherent stability of companies that we all invest in and their ability to continue paying dividends.

The second reason, however, is that we wanted to draw attention to the long-term trends inherent in the figures. By creating an ‘average’ of the FTSE100’s daily closing prices over the entire period, it is possible to add a ‘trend’ line showing the long-term ‘value’ of the index.

What is really interesting is that the index is currently some 30% below its long term trend line. This could, of course, simply reflect that the market was, indeed, overvalued and therefore represents a correction that will remain in place for some time. But this would assume that markets act in isolation. In fact, they are influenced not just by economic factors but also by the pressure of money available for investment.

For the past year, money has become relatively scarce as people sell assets on a falling market and feel less well off, because of falling house prices. This has exacerbated the problem of falling share values as there have been fewer investors chasing an increasing number of available shares. However, this is creating pent-up demand amongst individual investors, who need to make provision for their retirement, and institutional investors, who need to find a home for their funds.

The future is bright
The result of this is that we can expect share values to bounce back at least in the direction of their long-term trend, as soon as confidence starts to return to the market. It is possible that the election of Barack Obama as the next US President will be one of the engines of growth.

It is important to remember that the actual components of any index such as the FTSE100 – the companies which are used to calculate its value – are not constant. Mergers, acquisitions, new entrants and the decline of some old companies combine to ensure that the index constantly reflects the fortunes of the largest companies in the UK by market value. This, to some extent, reflects the health of the economy but not entirely because market sentiment is also important.

Only one thing is sure; uncertainty will continue for some time.

As ever, you should take individual professional advice before making any decision relating to your personal finances. For further information, please contact Robert Bruce Associates.

The value of investments is not guaranteed; you may get back less than you put in.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.