Do ISA's deserve to be slated?

baby_boomer

cheerfulcat wrote: »

Er, yes, because long term was what we were discussing...

Sorry, I thought you were only quoting medium term figures.

I was suggesting why these might be distorted because of the changing attitudes to equities in the post 1929 / 1939-45 era.

cheerfulcat

baby_boomer, the Capital Gilt Study uses rolling ten-year ( IIRC ) periods to avoid such distortions.

mau408

................if it follows the name Barclay's. i.e. Barclay's Cash ISA.

See other posts.

jamesd

The summary of the BARCAP Equity Guilt Summary 2007 is available and makes interesting reading.

For 2006 the 107 year extra return of equities over gilts is given as 4.2% in the UK market and in 2006 "UK equities returned 11.4% after inflation, against minus 4.4% for gilts, minus 2.1% for index-linked and 0.4% from cash".

Judwin

lisyloo wrote: »

I think this depends entirely on your attitude to risk.

I don't know how old you are but you sound as though you've only had good experiences with shares.
Some of us have had bad experiences (in some cases we would literally have been better off buying cans of beer as at least we could have enjoyed the beer :-)

Some of my colleagues won't invest in shares because of bad experiences in the dot com boom.

Personally I don't think that's the right attitude but your attitude doesn't suit me personally either (no offence intended just doesn't suit my personal attitude to risk).

I think a good balance of cash, shares and property is a good idea.
I've seen long term forecasts for equities of 7%, so 6% virtually risk free with no charges seems pretty good to me.
Having a large amount in cash also saves me getting expensive (and restricitve) redundancy insurance.

Each to their own, but I don't think you can make general rules as you have attempted to do because the risk/reward thing is very personal.

No offence taken. I'm just old enough to remember decimalisation, but not the 1966 World cup final.

I agree getting the right balance is the key, but putting all your savings every year into Cash ISA as I was doing isn't balanced.

As others have said, I think the 7% long term equities forcast is after inflation is taken out, whereas the 6% cash ISA rate is before. Using todays inflation figures, it should be more like 12-13% for investments, vs 6% for cash.

The other issue is that holding £30K in a cash ISA 'just incase of a rainy day' is equivalent to almost 2 years take home pay for the average person on average salary. Does anybody really need 2 years salary saved up in cash, unless it's for some defined purpose - house deposit etc? Given that it has to have taken a medium-long term to build up that amount in a cash ISA, then my point is that it would have been better to use a medium-long term vehicle to do that - no? And going forward, in another 8 years saving at £3K per year, the cash ISA is likely to be worth £70-80K. In cash?

My answer to the dot com boom thing is "balanced portfolio". Sticking the lot on dot-com (or anything else) isn't/wasn't much safer than sticking it on bet365.com. I'm taking great heed of what DunstonH says and spreading my investments far and wide. If I'd been investing back at the time of the dot-com boom, I hope I'd have some in dot-com, but the majority elsewhere.

And your redundancy thing - yes one needs enough cash till you got another job. But SS ISA investments can be sold just as easily and quickly as a cash ISA can be cashed in - give or take a day or two. You might have to sell at the wrong time when the market has just crashed, but if the SS ISA has been running for 8+ years, the odds are you'd still be ahead of where the cash ISA would have been after 8 years.

I don't have any figures for 8 years, but over the past 5 years if we assume an ISA rate of 5% (which is optomistic!), your cash would have grown by about 28%. The sector average for a low risk investment - UK other bonds was up 40%. More risky the FTSE-100 tracker up 50% and the FTSE-Allshare tracker up 60% (although both were down 30% after 18 months).

We can discuss all day long what percentage of our savings should be in cash or investments. I just thing it's inadvisable for most/all of it to be in cash long term.

Cheers,
Judwin

Quietgirl

I noticed that someone in the thread said about not having to tell tax credits about any interest within a mini cash isa. How about mini stocks & shares isa. Do we have to declare those ?

RayWolfe

No. All ISA types do not have to be declared.

thor

cheerfulcat wrote: »

Er, yes, because long term was what we were discussing...

Well for the long term I would say that stocks and shares are not the way to go. Sure they have risen over the last century or two but that is only a couple of hundred years and who is to say that they won't nosedive over the next 50? With global terrorism and the exhaustion of the world's resources(oil and gas mainly) I really cannot see companies being able to continue to maintain the profits of recent times. The only salvation I can see is that the reneweable industry is given more support than it has been. In the future they will become the neccessity rather than the left wing politically correct solution they are viewed as now. All these nimbys are burying their heads in the sand so that they do not have to acknowledge it. In fact renweables are probably the only sector I would buy shares in. We will need them.

cheerfulcat

thor wrote: »

In fact renweables are probably the only sector I would buy shares in. We will need them.

So in the future we won't need water, houses, food, banks, cars, computers, clothes, medicines, commodities, air travel, alcohol or tobacco; just wind turbines and solar panels?

lisyloo

The other issue is that holding £30K in a cash ISA 'just incase of a rainy day' is equivalent to almost 2 years take home pay for the average person on average salary.

Yep, point taken. I'm not on an average salary and the amount is "joint" (I know ISAs are legally individual but we really do keep our marriage vows regarding sharing things).

Does anybody really need 2 years salary saved up in cash, unless it's for some defined purpose - house deposit etc?

Nope. But for us that would relate to about 3 months and I've heard that timescale given as a "rule of thumb" as some people may not be able to find a new job instantly (although depends on your career of course).

Given that it has to have taken a medium-long term to build up that amount in a cash ISA, then my point is that it would have been better to use a medium-long term vehicle to do that - no?

I put in a cash lump sum in 1999 and it's barely done better than cash (it's with a good provided called Newton).
Hindsight is a wonderful thing and with hindsight that was a bad time to invest a lump sum.
I think the idea that you can get 12%-13% (in real terms) doesn't match my personal experience (or that of anyone I know).
Perhaps I'm doing something wrong, but I'm not a complete idiot. I'm fairly up on finance and have a degree, so I personally don't think it's as easy as some people are claiming.
If I had a good chance of getting 12%-13% then I would agree with you, but my personal experience of both ISAs and pensions (and GEBs) does not tie-in with these figures.
My husbands parents invested some money after redundancy. It went down. They later tried a GEB recommended by their bank. It would have gone down (over a 5 year period) if it hadn't been for the gurantee.
Now the put their money in a bank and are happy with a 6% (tax free) return because they know they can access it any time and aren't going to get any nasty suprises.

Perhaps we made mistakes but my personal experience is that for the unsophisticated it isn't as easy as you say to get the returns quoted.

We undoubtedly made mistakes but that just demonstrates (for me) how easy it is to get it wrong. We are both degree qualified and not idiots but I didn't know that 1999 was going to be a bad time to invest (and even if I did I couldn't control when an inheritance came our way).

And going forward, in another 8 years saving at £3K per year, the cash ISA is likely to be worth £70-80K. In cash?

Well we have about £250K in property and £200K in equities in pensions, so wouldn't that amount in cash be some sort of balance?
What type of balance do you think would be better?

But SS ISA investments can be sold just as easily and quickly as a cash ISA can be cashed in - give or take a day or two.

Yes I agree, but for volatility reasons you are told to regard it as a 5 year + investment.
So you CAN cash it in but you might experience a bad time if it just happens to be going through a dip at the time you need it.
If you consider out ISA we started in 1999 then it was in negative territory for most of 5 years !!

but if the SS ISA has been running for 8+ years

How do you know that you aren't going to be made redundant (or have some other emergency) for 8 years plus?
If you do then please tell me what profession you are in :-)

We can discuss all day long what percentage of our savings should be in cash or investments. I just thing it's inadvisable for most/all of it to be in cash long term.

I agree.
We are approx.
52% property
41% equities
7% cash

I have no idea whether that's "correct" but bear in mind there are a few other factors that affect our decisions such as:

1) needing somewhere to live
2) being forced (for all intents and purposes) to use company pensions
3) paying 40% tax is a consideration hence tax breaks are used where possible.

I don't think that 7% cash is overly huge and is only doing very slightly worse that our equity ISA.
Currently our cash is returning about 6% and the stocks and shares ISA about 7%.

It's invested in Newton (income, higher income and european finds). We sought and paid professional advice for the fund choice and receive rebates.

If you have any words of wisdom as to how we can improve things then I'd be very grateful for any advice/discussion.