MSE News: Best-buy savings accounts often beat investing in stock market, study...

Of course what the comparison with cash should comprise is a well diversified portfolio of investments and not a comparison with one tracker that most people would never have as their only investment. If a sensible comparison was made there would only be one hands-down winner. How many people would have a Footsie 100 tracker as their only investment? It's stating the obvious that you could hit problems at times.
But, even after all that, the tracker still won over the whole 21-year period. So, what's the point? As far as I can see the only point seems to be that if you make an extremely poor investment decision, sometimes you would have been better in cash if you hunted down the best deals. But even then overall the extremely poor investment decision can still come out on top over an extended period.

Does anyone know, 1) what fees they assumed on the tracker (which can go into a PEP/ISA), 2) what tax they assumed would be payable on the cash interest (which can't at decent rates for much of the last decade)?

Even with all of the flaws the end result is interesting in one way: £28,105 if using accounts available for small amounts of money vs £34,098 using a share tracker available for any practical amount of money. That's a big long term cost for using cash and in other numbers he suggests that the loss is about 20% a year (that is, shares grew by 20% more before tax effects than cash did, so 6% vs 5%).

Some of the ways in which the results appear to have been loaded, though presumably not with intent, in one particular direction include:

1. Ignoring income tax that is normally paid on interest. It's not normally paid on dividends or capital gains and the reasoning he gives only applies to small amounts of money (the allowance of up to £1,000 of interest being tax free) or in ISA or pension accounts where you can't get the best interest rates but can get the best equity returns.
2. Assuming a perfect shopper for savings who always chose the best rates but choosing a mediocre share tracker fund but not disclosing what its charges were. They could have been 1.5% or more. Today they are reasonably competitive at 0.17% but that is probably not so for the whole period. The comparison suggests that the actual charges were 1.3% a year because that is the difference between the Equity Gilt study returns without charges and the returns with charges that he gives.
3. The fund used is "HSBC FTSE 100 Index Retail Income" but the results are described as for dividends being reinvested. The income versions of funds don't reinvest the dividends, they pay them out. Even so the results suggest that dividends must have been accounted for somehow because they are too good to be ignoring them.
4. The choice of fund was poor given that it was relatively easy to select far better performers during the times being considered.
5. The choice of stock market index was poor being the UK only.
6. The choice of investments was poor, being equities only rather than the more normal advice to use a mixture of equities and bonds and rebalance around annually, an approach which has been shown to produce an increase of 0.5-1% in investment returns.
7. The best buy term deposit account was selected from those available for amounts "less than £2500 where possible and not exceeding £10,000". It's relatively easy to get above normal rates on relatively small amounts of money.

What's interesting is that all of those effects move the results in directions which make cash look better.

What could have been very interesting was the data set for the best buy term deposit account so it could have been compared to other studies like the Equity Gilt Study. Unfortunately it isn't made available.

It's also interesting he appears to be using a study that doesn't use real shares or stock markets but instead seems to be using a mathematical model to assert that the riskiness of shares purchased and held for longer periods doesn't decrease when studies of real markets show that it does and very substantially so.

If you choose a more capable investor they might also be aware of the Guyton rule for taming sequence of returns risks that uses Shiller's cyclically adjusted price/earnings ratio result to increase returns by about 1% by selecting the best and worst times to hold equities and adjusting the amount accordingly. Though that's a little unfair because it's doable now but the research is relatively recent so it's more relevant for people deciding now than the results of this.

Wasn't there a report or a book or something "monkey with a pin" a while back which also claimed that the return from cash wasn't nearly as bad as portrayed by the financial industry ? Again, because the numbers quoted for cash were always base rates or normal savings accounts or something.

coastline wrote: »

The FTSE 100 has been used in the survey and although its not the best it has matched the performance of the MSCI World Index from January 1995 to present.

https://www.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,NUKX,NASX

I'm not about the data from the link you've given.

In last 10 years it's been 110% for MSCI World vs 55% for FTSE100. That doesn't look like matching. Since launch 7296% vs 1231%