Jump to content

Is your Cash ISA a wasted opportunity?


Recommended Posts

The number of people with Cash ISAs has fallen by 3.8 million since the 2008 financial crisis as more and more people start to realise that keeping their savings in cash gives them a negative real return. This is because the rate of inflation has mostly been above the interest rate paid on Cash ISA accounts during the last decade.

 

It is worth pointing out that if you plan to use cash for intended purchases, or require a buffer for those unfortunate and unexpected outlays, it is likely that holding cash or investing in a very low volatility fund is the sensible thing to do.

 

However If you have a longer term investment horizon (+3 years), the majority of people should look to invest in a diversified portfolio containing a mix of equities, fixed income and alternative investments such as gold.

 

As you can see from the chart below, even if you had been very unlucky and invested just before the 2008 financial crisis; an investment of £20,000 in a balanced portfolio would now be worth around £37,000 today. If you had opted for a Cash ISA, your savings would have grown to just £25,000.

 

2018-03-09 09_24_47-Community articles ISA season 1 - 3.docx - Word.png

 

If you have any good stats to support this claim or if you disagree please post these below.

Link to comment

that is interesting, how is the 'balanced portfolio' defined, in this chart? also it is worth just honing in that the balanced portfolio dropped by about £5,000 between 2008 - 2009, which would have freaked out a lot of people whilst cash held still rose in this period. Suggests mid 2009 would have been the right time to switch from cash to shares. although hindsight means we would not know this at the time.

 

I ask about the balanced portfolio constituents because it would be interesting to see how this correlates with an index, like the ftse100/250.

Link to comment
Guest PandaFace

I guess they didn’t want to take the absolute BEST scenario, and instead have shown that even at the worst case (just before the crash) tracker funds are still far better. A 25% loss would be hard to deal with for 3 years tho. I wonder what the gain would look like if you had got in at the bottom...

 

This reminds me of that warren Buffett bet where he bet an index tracker would be cheaper and higher rate of returns over a managed portfolio. I don’t have a link but will post when of mobile.

 

 

Link to comment
Guest IGSam

Hi

 

For this ‘Balanced’ portfolio I used three instruments. The weight in the portfolio given to each is given too...

 

  1. 48% - Developed market equities (MSCI World Net Total Return Index)
  2. 48% - UK government bonds (FTSE Actuaries UK Conventional Gilts Total Return Index)
  3. 4% - Gold (LMBA Gold Price)

I crunched the numbers for you and over this period the FTSE 100 returned 84% while the FTSE 250 grew by 169%. In comparison, the ‘Balanced’ portfolio I constructed using the 3 indices above was up 82%, extremely close to the FTSE 100 total return! 

 

Total return.PNG

 

However, the maximum drawdown (peak-to-trough) for each index/portfolio shows why diversification across asset classes can help to smooth your investment returns. 2008 was a painful period for most investors (circled in chart below). The largest drawdown was -43% for the FTSE 100, -47% for the FTSE 250. But for this 'Balanced' portfolio it was half that at -21%.

 

This is the ideology that sits behind our suite of Smart Portfolios: Risk and Returns

 

Max drawdowns.PNG

 

 is also completely right. I started the chart before the 2008 financial crisis to show that even investing through the worst market scenarios, a buy-and-hold approach over this period has provided solid returns in comparison to leaving your cash in the bank.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      21,170
    • Total Posts
      90,690
    • Total Members
      41,274
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    toshendra
    Joined 27/01/23 19:31
  • Posts

    • I am a beginner, and I must say, there are a lot of rules to the trading game that one must abide by if they want to be successful.   Here, the writer mentions several basic rules for day vs swing trading.  However, I find that often times, the reasoning for these rules is not as  obvious for a beginner as it may be for an expert.   The 'why' factor if I may. For example, why must you have a large capital to trade with as a day trader? Because your positions must be large so that a small change in price will be augmented and turned into a large profit. Also, with such high risk, the margin will be specially high, given the trader is taking up large positions at a time.  Without a large amount of capital, positions may be forced to close due to funds being below margin requirements.  When this happens, you can expect to lose tons of cash, fast.  I learned the hard way. All the best, David Franco      
    • USDJPY has been regaining ground this week, but inflation differentials and a three-month trend signal the potential for another turn lower Source: Bloomberg      Joshua Mahony | Senior Market Analyst, London | Publication date: Friday 27 January 2023  USDJPY set for third monthly decline The USDJPY pair has been on the slide since its October high, with the historical 147.63 resistance level ultimately marking the end of the dramatic 21-month rally that saw the pair gain almost 50%. Much of that came through a period that saw US inflation soar as Japanese prices remain subdued. That disparity remains, but the direction of travel has certainly shifted as US CPI declines and Japanese price growth gradually ticks up. The overnight 4.3% figure for Tokyo core CPI represents a four-decade high, with the nationwide figures likely to follow on. The chart below highlights how USDJPY has been heavily correlated with the now tightening gap between US and Japanese inflation. However, it is more evident when shifting that inflation differential forward by seven-months. That close correlation highlights the potential for further downside as long as prices continue to trend in a similar manner. Source: ProRealTime Looking at the daily chart, the recent rebound has taken price up towards the top-end of a descending channel and Fibonacci resistance. This highlights the bearish pattern that has been playing out, with lower highs and lower lows in place in recent months. Unless we see price rise through trendline and 134.77 resistance, another turn lower looks likely for this pair. Source: ProRealTime
    • @MongiIG Hi - You recently covered Long NICKEL Trading the Trend and A. Rudolf did this morning but I see it is Closing only. Please clarify, Thanks D600
×
×
  • Create New...