MSE News: Inflation rise means all savings are 'losing' accounts

nrsql

ed123 wrote: »

The recent reports that invest companies/pension providers etc take up to 75% in fees also inclines one towards cash.

I think that's of the initial investment.
With good performance or high inflation it will probably be well over 100% - in fact the better the performance and more profit you get the higher percentage the fees. So in this respect the higher the percentage the better off you should be.

dunstonh

.......the stock market is a poor option for someone in retirement......the general advice is for someone to withdraw from shares as they approach retirement, they are a long term investment 10-15years

The stockmarket is not a poor option in retirement. At 65 you could live another 30 years. It is also not the only option.

The recent reports that invest companies/pension providers etc take up to 75% in fees also inclines one towards cash.

Those reports were found to be inaccurate and contain misinformation. Its nothing even close to those figures. The research used hypothetical charges for the UK that were 50% higher than the benchmark set in 2001 and were up to 6 times higher than the cheapest options in the UK and compared them to the cheapest real fund option overseas but didnt include the cost of platform/provider. Had they compared like for like then the cost difference would have been virtually the same.

They also went on to make schoolboy errors like taking the full amount of charges over a term (of say 30 years) in future money terms and then reported those charges as if they were taken on day one in todays money terms. Failure to include inflation was disgraceful reporting. However, if they did include inflation it wouldnt be sensationalist.

Also, the charges on savings accounts are often higher than those on investments.

[Deleted User]

dunstonh wrote: »

The stockmarket is not a poor option in retirement. At 65 you could live another 30 years.

It is of course possible that you'll live for 30 or 40 more years. But it's unlikely. The sad reality is that the older you get the lower your chances of being around in 5 years time. And that's yet another factor that people will consider when deciding what to do with their money. Which is why your blanket statement that...

dunstonh wrote:

Savers using cash to supplement their pensions need to use other products. Low interest rates doesnt change that.

...just doesn't wash.

If you go into retirement (67) with a decent pension, a mortgage free home and a lump sum then many will consider it time to start spending - after all, you can't take it with you. A reasonable approach is to make your cash savings last say - 10 years. If at 77 years old you're still going strong you have the option to downsize or release equity from your home. If when that runs out you're still here then you thank your lucky stars that you've had such a blast and settle down to spending the rest of your days living modestly (or not so modestly) on your pension alone.

It's fair to say that the stockmarket is a very poor option for many people in retirement. For others investments will be a viable choice. It all comes down to your attitude to risk, and also what assets you have and what you want to achieve in the future. If you already have enough to give you what you want then all that matters is beating inflation with minimum risk - and that STILL means savings is the best bet for lots of us.

dunstonh

It is of course possible that you'll live for 30 or 40 more years. But it's unlikely. The sad reality is that the older you get the lower your chances of being around in 5 years time. And that's yet another factor that people will consider when deciding what to do with their money. Which is why your blanket statement that...

Doesnt matter. Life expectancy in retirement is enough to still have some investment in equities. If you are concerned about death, then a death benefit protection could be factored in.

Which is why your blanket statement that...

Quote:
Originally Posted by dunstonh
Savers using cash to supplement their pensions need to use other products. Low interest rates doesnt change that.
...just doesn't wash.

It does wash and its a fact that cannot be argued. Of course, someone that is happy to see their savings erode and then borrow against their property when the savings run out may not choose to invest. However, if they are happy to see savings erode and borrow money against the property then they should be happy to invest some of the money as well.

It's fair to say that the stockmarket is a very poor option for many people in retirement.

If the person has just £10k in the bank then yes it is. However, if they have £100k or £200k then no it is not.

If you already have enough to give you what you want then all that matters is beating inflation with minimum risk - and that STILL means savings is the best bet for lots of us.

If you make the choice knowing the options then that is fair enough. However, if you dont know the options and think, for example, that stockmarket is the only investment option or that cash is risk free then clearly its impossible to say any option is best as you are not considering the options available.

and that STILL means savings is the best bet for lots of us.

And in that case, accept the risks that go with using cash. Shortfall risk and inflation risk.

barak

dunstonh wrote: »

.....Life expectancy in retirement is enough to still have some investment in equities.....

.....If the person has just £10k in the bank then yes it is . However, if they have £100k or £200k then no it is not.

.....If you make the choice knowing the options then that is fair enough.....

.....And in that case, accept the risks that go with using cash. Shortfall risk and inflation risk.

I agree with what dunstonh is saying here and elsewhere.

Unless there is some specific reason for keeping all the cash instantly available, I find it strange that somebody with a house, a good pension, £200k cash and twenty years to go before retirement would not want to invest at least up to half of it. Being so opposed to the idea, I do wonder - scarter - whether you are generally against the idea of holding any investments at all. :undecided

[Deleted User]

barak wrote: »

I agree with what dunstonh is saying here and elsewhere.

Unless there is some specific reason for keeping all the cash instantly available, I find it strange that somebody with a house, a good pension, £200k cash and twenty years to go before retirement would not want to invest at least up to half of it. Being so opposed to the idea, I do wonder - scarter - whether you are generally against the idea of holding any investments at all. :undecided

I'm not against the idea of holding any investments - far from it. I love holding investments. As a matter of fact most of my assets are a result of property investment. But there was never any risk as all I ever did was buy homes that I loved. If my home was worth nothing today I'd still be blissfully happy. I've held other investments over the years that have worked extremely well for me and beating inflation by miles.

But here's the rub. Unless the investment comes with a guaranteed return you can get your fingers well and truly burnt. Without a guaranteed return you could loose everything overnight. Without a guaranteed return you are gambling.

As to why I don't want to invest at least half (or any) of my 200k...

It all comes down to a combination of risk tollerance and aspirations.

We all have an idea of what we want now and in the future and we have to weigh that up against what we actually have. The closer your reality is to your aspirations the less likely you are to risk what you have in order to gain more.

At this time my reality and aspirations match nicely. So far my savings are winning the battle against inflation so my cushy little lifestyle is still looking very safe. Of course that could change if inflation stays ahead of interest long-term. But it's a gradual thing and provided I keep tabs on the situation I always have the option to do something else with my money before it's erroded by inflation.

Now if an investment came along that I considered to be equal or lower risk than savings then I'd consider it. That means an investment that offers a guarantee of capital plus a return that is close to matching inflation.

But it's unlikely I would touch an investment that didn't come with a guarantee. I don't care how much money I *might* make. The bottom line for me is "how will I feel in the worse case scenario" followed by "am I content with the best case scenario". I'm comfortable with the worse-case-scenario and best-case-scenario of my current saving strategy. I've yet to find an alternative with an acceptable worse-case and a worthwhile best-case.

lvader

It has been the case in the past that as you move close to retirement you should switch from equities to things like bonds and gilts. I'd say that in todays economy that would be a high risk strategy.

Kohoutek

dunstonh wrote: »

Also, the charges on savings accounts are often higher than those on investments.

What charges on savings accounts?

StevieJ

lvader wrote: »

It has been the case in the past that as you move close to retirement you should switch from equities to things like bonds and gilts. I'd say that in todays economy that would be a high risk strategy.

I agree, the safety first option is probably to ditch bonds a gilts (and savings accounts) :eek: NS&I index linked, You don't miss a good thing until it is gone Scarter must be well topped up in those as they totally fulfill his requirement.

[Deleted User]

StevieJ wrote: »

I agree, the safety first option is probably to ditch bonds a gilts (and savings accounts) :eek: NS&I index linked, You don't miss a good thing until it is gone Scarter must be well topped up in those as they totally fulfill his requirement.

Right now I'd be very happy if all my money ws in NS&I index linked as I'm sure would many people - LOL!. However, a year or so ago they weren't competetive enough to even be mentioned as a viable option on the Banking and Saving section of this website. People that chose to take advantage of interest rates significantly above inflation back then might be loosing out now compared to those with NS&I index linked, but they managed to build up a bigger buffer so they can absorb greater losses now.

But of course being the belt and braces type of person that I am I did decide to invest 60k (the maximum for a couple) when things started to look bad. I got lucky in that I took advantage of higher rates when they were available yet got a good chunk of my money into NS&I before they were withdrawn.

But that's about the limit of my risk taking - whether to stick with NS&I index linked when interest rates are outstripping inflation by a mile or to take advantage of well above inflation interest rates and risk being locked out of guaranteed inflation beating savings when things go badly.