S&S ISA v Cash ISA for Retirement Savings

Dithering_Dad

At the start of the year, I suggested to someone that saving for their retirement in Cash ISAs was probably not a good idea because for such a long-term investment as a pension, using cash ISAs would mean the person's savings would be eroded by Inflation. I suggested instead that they should use an S&S ISA and invest in a diverse portfolio of shares and index linked/fixed interest bonds.

Given the current drops in the stockmarket, do the panel believe that I was incorrect in providing this advice?

Just for accuracy, I was talking about Cash ISAs, not about temporarily holding money in a Cash Fund within an S&S ISA (I'm doing this myself right now and simply waiting for the market to stabilises and then I'm back in shares).

Pobby

I`m just copy and pasting what I have already put on another forum

``It`s difficult to know what to do right now with only a few years from retirement. We have a mix of old company pensions and private pensions that were due to pay out £10k a year between 2 of us. The non pension investments I have split between 70% cash isas, high ( that`s a laugh ) interest savings, government and corporate bonds and 30% in equities which was set up to pay an annuity of around £12k a year. Not really happy about the equity bit but hey ho.

With us both getting a full state pension plus some serps we had hoped for a pretty comfortable retirement in particular being mortgage and debt free. I have to say, being a bit prone to panic, that the last few days has really spooked me.

``

dunstonh

Given the current drops in the stockmarket, do the panel believe that I was incorrect in providing this advice?

In any short term period you run the risks of other options being better than what you suggest. Over the long run though a balanced portfolio (with income reinvested) would be expected to come in better than cash.

Regular contribution contracts like pensions can really benefit from periods like this providing you are not investing in equities and retiring in the next few years.

Dithering_Dad

dunstonh wrote: »

In any short term period you run the risks of other options being better than what you suggest. Over the long run though a balanced portfolio (with income reinvested) would be expected to come in better than cash.

Regular contribution contracts like pensions can really benefit from periods like this providing you are not investing in equities and retiring in the next few years.

So over the long term (I think the person I was discussing this with had over 20 years to go) you'd say that S&S ISAs or traditional pensions were much better for retirement investment than using CASH ISA's?

dunstonh

Dithering_Dad wrote: »

So over the long term (I think the person I was discussing this with had over 20 years to go) you'd say that S&S ISAs or traditional pensions were much better for retirement investment than using CASH ISA's?

As long as the fund choice is diversified and kept under review (rebalance it periodically for example and as you get closer to retirement you reduce the risk) then absolutely fine.

The investment spread should match the risk profile of the individual. Thats the important bit. Going 100% into any one option will never be the best long term option. It doesnt matter if its shares or cash. Doing either extreme is not ideal.

Dithering_Dad

dunstonh wrote: »

As long as the fund choice is diversified and kept under review (rebalance it periodically for example and as you get closer to retirement you reduce the risk) then absolutely fine.

The investment spread should match the risk profile of the individual. Thats the important bit. Going 100% into any one option will never be the best long term option. It doesnt matter if its shares or cash. Doing either extreme is not ideal.

That's pretty much why I stressed the diverse portfolio. One finds that many people who are against investing in the stockmarket base their belief on the rises and falls on the FTSE100, when this is simply an index of just 100 UK companies, many of which are in the same industries (banks and miners).

My own pension portfolio was a mix of index linked gilts, cash and equities. The equities were held in funds that covered a wide range of geographies and industries. However, as they started to nosedive I decided to move all my existing funds from equities into cash but I'm still investing my regular monthly premiums in equities.

Strangely, when I mentioned I was doing this, I was attacked for being a hypocrite because of my earlier comments about not investing long-term in a Cash ISA. I guess some people don't know the difference between investing long-term in a Cash ISA and short-term in a Cash Fund held in an S&S ISA.

Incidently, by doing this I have prevented a fall of £7600 in my pension pot and I'm poised to move the money back into equities once I feel some stability in the market. I intend moving the cash to equities in chunks, rather than as a whole, because it's so difficult to call the 'bottom'.

EdInvestor

Timing the market is not easy of course, you run the risk of missing the best bit of the recovery. Unless you have a crystal ball of course, in which case how come you're not already rich?

Dithering_Dad

EdInvestor wrote: »

Timing the market is not easy of course, you run the risk of missing the best bit of the recovery. Unless you have a crystal ball of course, in which case how come you're not already rich?

I wish they'd hurry up and invent those durned crystal balls, it'd make investing so much easier!

I think the market are still on a downward trend; no matter what the government & central banks do at the moment, we're heading into a recession. It's hard to know when to get back into the market (especially sans crystal ball ) but I think the FTSE100 at least will drop beneath 4000 and that's probably going to be the point where I get interested again.

As you say, you can often miss out on some gains when you're out fo the market, but I'd rather miss out on gains that I never had than lose money that I already had. (If you see what I mean!)