Trend from Passive funds to Bank accounts

Malthusian

Sg28 said:

Passive funds aren't beating inflation either. When you can earn 6% guaranteed why take the risk hoping to just slightly more? 

Passive funds have beaten inflation for anyone invested longer than 8 years (which isn't the most relevant comparison as you can't invest in inflation), and they have beaten cash for anyone invested longer than 3. 

orange-juice

Where can I read up more about the passive fund concerns?

Swipe

orange-juice said:

Where can I read up more about the passive fund concerns?

https://www.vanguard.co.uk/professional/vanguard-economic-and-market-outlook

https://advisors.vanguard.com/insights/article/series/vanguardmarketperspectives#projected-returns

Sg28

Malthusian said:

Sg28 said:

Passive funds aren't beating inflation either. When you can earn 6% guaranteed why take the risk hoping to just slightly more? 

Passive funds have beaten inflation for anyone invested longer than 8 years (which isn't the most relevant comparison as you can't invest in inflation), and they have beaten cash for anyone invested longer than 3. 

Up to now anything that was merely above 0 growth would have beaten cash, the question is will they continue to beat it now interest rates are more normal and investors/savers dont need to look to higher risk to get returns. 

Hopefully they do I as I have long term savings and a SIPP in passive funds. 

But I admit it has crossed my mind to transfer some of my s&s isa to cash. 

Frequentlyhere

 even though the interest rates are not more than inflation. Why is this? 

This is a very common misunderstanding. Inflation readings look backwards, savings rates look forwards. 

It could be that in July 2024, inflation would have sunk to 3%. In the intervening period, a 6.2% saver would be sitting pretty. Or not. In any case, that's what you should be comparing against, not today's rate.


You could however say " wow, look at how badly cash savings has done in the last year - 1.3% return whilst inflation is 8%+"..

Ref: shares vs cash, shares are still the optimal long term vehicle. I use both, but have a sneaky feeling cash might be ahead 1 years hence. Not going to bet on it though.

Beddie

I've moved a fair amount of my S&S ISA into money market for now, as the almost 5% is quite attractive and steady compared to the funds stuck in the doldrums I seem to pick. It's an age thing too, as I get older steady returns seem more well, steady.

We can check back in a year to see what the crystal ball should have told us!

jbrassy

Over the long term, stocks and shares will outperform cash savings, especially if you invest in a well diversified low cost tracker. 

From this Motley Fool article: https://www.fool.co.uk/2023/06/13/why-should-i-buy-ftse-100-stocks-when-savings-rates-are-so-high/

"Quilter analysed the annual return generated by the global stocks versus cash going all the way back to 1984. It used the MSCI World Index to gauge stock market performance over the period, and a moving average of the Bank of England base rate to calculate the cash return.

It found that:

Over rolling five-year periods, global stocks have provided better returns than cash 74.2% of the time.

During rolling 10-year periods, stocks have outperformed cash 85.5% of the time.

Over rolling 15-year periods, shares have beaten cash 91.3% of the time (aside from short periods following the ‘dot com crash’ and during the 2007-2008 financial crisis)."

Transferring from stocks and shares to cash during a short term may be wise giving we are living through an extraordinary period of high inflation, but over the long term this is unlikely to last. If you're a long term investor, I wouldn't worry too much about this temporary blip and just remain invested in shares. 

Nebulous2

I'm going the other way - though fairly slowly. 

We have a property related expense we wanted to make, but it is dependent on somebody else paying a share. As a consequence of this, we have a fair bit of money in cash / near cash. 

We have both been contributing modest sums to SIPPs and investing it. 

As time has dragged on, we have been spending some of our cash, whilst continuing to invest, which means we are rebalancing away from cash. 

GazzaBloom

In my opinion, moving money from low cost equity index funds into cash of MMF due to the lure of 5-6% interest rates is short termism or an attempt at market timing. For anyone building a retirement fund, to sustain them at the point of retirement and beyond, history suggests that equities will be the bigger driver of growth and should beat inflation over 10-20 years, it is unlikely that cash will.

Staying invested in equities is the sensible path for long term growth with a hope of beating inflation.

Malthusian

Sg28 said:

Up to now anything that was merely above 0 growth would have beaten cash, the question is will they continue to beat it now interest rates are more normal and investors/savers dont need to look to higher risk to get returns. 

If people who take risk are getting lower returns than people who don't take risk, something is broken in the world economy. Investors need returns above the risk-free rate to persuade them to risk their capital.
If cash truly did pay more than investments over the long term, people would sell risky assets and stick their money under the mattress, which would cause the price of assets to fall, which would increase the potential returns for the investors who bought at lower prices, which would restore normality. We aren't even seeing that happen to any great extent, otherwise stockmarkets would be falling more than they have.
 When prices are rising, businesses' profits rise, asset prices rise and returns rise. Investment in real assets should therefore roughly follow inflation - not consistently, but as a general rule and in the long term. Cash returns less than inflation.
Savers didn't need to look to higher risk to get returns before 2022 either. They could get a return of 1%pa on easy access. In real terms that was a better return than they are getting now. In the zero interest rate era they were making a real return of about minus 1% - 2%, now they are getting minus 6%.