If an investor put £20k into FTSE All-Share ten years ago, this is what they would have today!

“Diversification is the only free lunch in investing,” according to the late economist Harry Markowitz. Another way investors can diversify their portfolios is by investing in an index such as FTSE Shares Everything.

I am not sure if Markowitz would or would not put his own money in this UK stock index today. But as home to a wide range of growth and income dividends, it offers investors the chance to make big returns while spreading risk.

As well as- FTSE 100 again FTSE 250FTSE All-Share also includes FTSE Small Cap Index. In total, it comprises about 98% of the total market capitalization of the London stock market.

But how much would ISA investors have today if they had invested £20,000 in an index ten years ago?

A solid comeback

Since 23 December 2014, the FTSE All-Share has increased by 24.9% in value. Combined with equities, the index’s average annual return comes out to 6.1%.

This functionality means that someone who invested £20k – the maximum annual allowance for a Stocks and Shares ISA – would now be sitting on £36,752, give or take a few cents.

That’s not a bad result. In fact, it’s better than the 5.5% average annual return the FTSE 250 would provide, and the Footsie’s corresponding 6% return.

An important caveat

That said, the FTSE All-Index’s gains are still significantly smaller than what a mutual fund would achieve elsewhere.

Let’s say an investor has decided to park his money S&P 500 in turn. Based on an average annual return of 11.3% since 2014, a sum of £20,000 in the index fund would have made them a whopping £61,587.

Past performance is not a reliable guide to future returns. And following recent underperformance, some analysts believe UK equities could outperform their overseas peers in the future, given their higher value.

However, there are also reasons to expect UK stocks to remain dormant. The US stock market has a high concentration of high-growth technology stocks that could propel it higher. In addition, signs of renewed weakness in the British economy may weigh on the domestic stock market.

One top stock

So far, I have never been tempted to buy a UK tracker bag. Instead I bought one that tracks the S&P 500, and a handful of US-focused sector and equity exchange-traded funds (ETFs).

However, I have also bought individual UK stocks that I think could outperform the market. Games Workshop (LSE:GAW), a giant in the tabletop gaming industry, is one that I have increased my holding in 2024.

Over the past decade, it has delivered an annualized return of 40.3%, driven by a surge in global interest in fantasy fighting games. It is now a proud member of the FTSE 100 club following this month’s promotion.

Consistent performance is not guaranteed. But I’m sure it can continue its proud record as the number of stores increases worldwide, and it looks set to charge income from film and TV Amazon.

Profits may decrease during a recession. But on balance, I think this growth share will always be a better investment for me than the FTSE All-Share tracker fund.