Stocks/Bonds vs Fixed Rate Accounts?

RolandFlagg

Having read and watched videos of pretty much everything the late Jack Bogle said I know that despite it's volatility a diverse low cost stock and bond portfolio is something everyone should have. The younger you start the better. Buy right, sit tight and let it compound. The market goes up, but not in a straight line, which causes behavioural issues with retail investors. Fomo when the market is going up. Panic selling when the market is going down.

So over the years, investing mainly in a total market and a S&P 500 funds and not listening to any "experts" or trying to time the market I've done very well, and if I was still in my 30's or 40's I would still prefer the stock market over fixed rate savings.

But I'm in my 50's now, and if by the end of the year (when I'm due a big lump sum from a maturing account)  5 year fixed rates are around the 7% mark (which seems likely) I'm sorely tempted not only to put my lump some in but move some of my stock market money into a 5 year fixed as well. A bird in the hand and all that.

But to play devil's advocate...if U.S inflation is well under control and interest rates over there are dropping there maybe another bull market, and if we get back to 10% a year on average and with the power of compounding it maybe wise to stick with the stock market....especially as after the 5 year fixed is over rates here are likely to be much lower.

So stick or twist?

Opinions?

root

It all depends on when you need the money.

 (you're planning on spending it at some point - right?)

Albermarle

It has become a regular topic on the forum recently. In end it is your decision based on your personal circumstances and personality.

Doctor_Who

No one has a crystal ball, despite what some might say! A diversified portfolio of savings and investments is almost always best. I am moving some money from savings to gilts and equities, but I'm probably overweight in cash and somewhat of a contrarian. What's right for me won't be right for you!

CheekyMikey

I faced a similar dilemma a year ago. I turned 60 and chose to put £100k of my fs pension lump sum into 5 year fixed at 5.1%. The remainder I have held in a top ea account but I have sold some equity and bond funds too and put that money in another ea account. I am going to put all this cash into another 5 year fixed later this year, ideally at 6.5%+. Like you, I like the sound of guaranteed return, for me that is monthly income. This is only 20% of my pf though so I still have plenty of exposure to the markets if there is another bull run. I think your thinking is theoretically sound but it all depends on how your pf is constructed and your personal financial goals and circumstances.

EthicsGradient

At the moment, savings interest rates are roughly at a peak for 2 year fixes, almost as high for 3 years, but dropping off a bit for 5 years - indicating the market sees rates dropping off about halfway through a 5 year term. Do you have a good reason for going for the longer fix? As said above, start with when you'd like to spend the money, and how much. Perhaps the lump sum will suffice for your spending from beyond 5 years for a bit, and just keeping that in savings would be enough.

Are your S&S funds in an ISA? If so, the rates in long term cash ISAs aren't so good. And giving up the tax advantages of keeping what you've built up inside an ISA to go outside and get a better rate doesn't seem wise.

JohnWinder

Are you losing the faith? Have you read Jack’s Keynote speech at The Investment Forum and Expo, The Arizona Republic Tempe, March 18, 2000?  Don’t try to time the market, because you have to get the timing right twice, first when you get in/out and secondly when you get out/in.
The decision shouldn’t be about timing the market, unless you’re a bit of a gambler; it should be about whether the risk is right for your circumstances. If you’ll need to withdraw more than just a bit from you stocks and long bonds in the next 10 years or so, it’s time to load up on cash; or if you’re starting to feel nervous about your existing portfolio, same. Otherwise, read more from Jack.

Albermarle

Doctor_Who said:

No one has a crystal ball, despite what some might say! A diversified portfolio of savings and investments is almost always best. I am moving some money from savings to gilts and equities, but I'm probably overweight in cash and somewhat of a contrarian. What's right for me won't be right for you!

For me I have been also moving more cash into pensions and now S&S ISA's over the last few years, but I am hesitating this year.
I suppose that is a kind of trying to time the market by inaction !

ChilliBob

Albermarle said:

Doctor_Who said:

No one has a crystal ball, despite what some might say! A diversified portfolio of savings and investments is almost always best. I am moving some money from savings to gilts and equities, but I'm probably overweight in cash and somewhat of a contrarian. What's right for me won't be right for you!

For me I have been also moving more cash into pensions and now S&S ISA's over the last few years, but I am hesitating this year.
I suppose that is a kind of trying to time the market by inaction !

I'm moving a good chunk of my cash into gilts, and to a lesser extent a European tracker. (yeah I know, sort of against passive to overweight, but so much I hear about the US makes me think it may be either flat for a bit of due a correction - yep, I may well be wrong but if Europe is a buy and hold the worse case scenario I'll be a bit worse off compared to a global tracker.

Any cash I do I have I'm sort of rate chasing where I can tbh, so opening, waiting, putting a bit in etc. 

It's tricky though as despite if being 6-7% odd you know you're locking on a loss, for now. I suppose at least with equities you know there is a *possibility* to beat inflation, however, predictions for the next 10 years make that seem unlikely in the next couple of years.

Any cash I *do* forecast I'll need is either in easy access or in short term fixes which would run out by the time the easy access cash has gone, well, in theory! 

Doctor_Who

Albermarle said:

Doctor_Who said:

No one has a crystal ball, despite what some might say! A diversified portfolio of savings and investments is almost always best. I am moving some money from savings to gilts and equities, but I'm probably overweight in cash and somewhat of a contrarian. What's right for me won't be right for you!

For me I have been also moving more cash into pensions and now S&S ISA's over the last few years, but I am hesitating this year.
I suppose that is a kind of trying to time the market by inaction !

A combination of inheritance/pandemic/early retirement/house sale/moving to Scotland/house purchase (and some inaction!) left me with excess cash that I have been dripping back in to equities this year. At least the inaction avoided some of the drop in 2022! The gilts are very cash-like and when they mature I will decide whether they go in to equities. I am in a fortunate position of having a very good DB pension (CPI linked) that I can take from 65 (I paid for added years AVCs for ~15 years). Hence, a bit of inaction isn't going to make me a pauper in my later years and I can probably afford to take more risk with my other investments. If all I had was a DC pension things might be different!

dunstonh

Having read and watched videos of pretty much everything the late Jack Bogle said I know that despite it's volatility a diverse low cost stock and bond portfolio is something everyone should have.

He was talking to US investors dealing in USD.     UK investors are different.

So over the years, investing mainly in a total market and a S&P 500 funds and not listening to any "experts" or trying to time the market I've done very well, and if I was still in my 30's or 40's I would still prefer the stock market over fixed rate savings.

This particular cycle has been very strong for US and with falling Sterling (until recently), it was a win win for UK investors.
The previous cycle was rubbish if you were heavy in US equities.     So, be careful being too heavy in one area.

So stick or twist?
Opinions?

The argument for equities hasn't changed.    The argument for using cash instead of fixed interest securities is a different matter.  However, your first post says you ignore short term timing issues despite you now considering short term timing issues.  So, you may need to decide where you actually sit on that one.

It may not be too much longer where moving from cash back to fixed interest securities would be the right thing to do.   Another timing decision for you.