Trend from Passive funds to Bank accounts

AlanP_2

Irrespective of whether you should be in risk assets or cash (I'm in the risk assets camp) I am astonished at the levels of celebration that current interest rates generate, on here, in the wider media and in conversation.

Being pleased you are losing a real 4% or more compared to 1% or so when rates were low seems very bizarre to me.

Prism

There is no recent historical evidence that cash has been the place to be.

Royal London money market fund has returned 3.4% over the last year and 3.7% over the last 3 years. Fidelity Index world (equities) has returned 8.7% over the last year and 37.5% over the last 3 years. Of course, it is a guess about what might happen going fowards and the difference is unlikely to be as large but who knows.

As usual, use cash savings for things you need soon. Invest the rest.

Stargunner

AlanP_2 said:

Irrespective of whether you should be in risk assets or cash (I'm in the risk assets camp) I am astonished at the levels of celebration that current interest rates generate, on here, in the wider media and in conversation.

Being pleased you are losing a real 4% or more compared to 1% or so when rates were low seems very bizarre to me.

Inflation is very personal. Some people won’t care and just pay the extra, some will cut back on things to reduce their outgoings, others will really struggle. Maybe the ones celebrating have outgoings of around a £1k per month, so their monthly outgoings haven’t gone up a lot in monetary value due to inflation, and they have a 6 figure sum in savings now earning 4-5% more than they were previously getting.

metrobus

The older generation with large savings and low expenditure who do not mind how much they leave in their will are losing nothing and in a lot of cases gaining despite inflation.
Like earlier said inflation is very personal, due to giving up a hobby my outgoings have decreased approximately 10% over the last year and income from pensions and savings etc  increased about 5% .

marycanary

Doctor_Who said:

Someone who made a 2%pa real return on their money over the last ten years is going to love the prospect of semi-guaranteeing a 4% real loss over the next one?

 It makes sense for the money you plan to drawdown over the next 1-3 years, but not for the money you plan to drawdown in 10-20 years time. 

That's good advice in general but what about the money needed in years 4 to 9? In my view, it is not illogical for someone needing money over that timescale to place it in cash (particularly for spending in years 4-7). A risk free return of around 6% for 5 years before inflation (currently CPI 7.9%) might look very good if inflation continues to fall. Of course, it's an if. Could it be people in that position who are creating the "noise" about cash?

Albermarle

I'd be surprised if posters were switching from investing into cash 

There have been quite a few posts along these lines, mainly from new posters, which is what started this thread off in the first place.

However even some more regular posters have been tilting more towards higher cash % than usual. As @marycanary said, for that awkward middle ground time scale of 4 to 9 years, it might not be such a bad idea for some people, and for some it will only be a bit of tweaking rather than a full scale change.

Albermarle

AlanP_2 said:

Irrespective of whether you should be in risk assets or cash (I'm in the risk assets camp) I am astonished at the levels of celebration that current interest rates generate, on here, in the wider media and in conversation.

Being pleased you are losing a real 4% or more compared to 1% or so when rates were low seems very bizarre to me.

I think that although people generally understand the effect of inflation on their weekly expenditure, they do not really understand the longer term effects on their assets. You see posters on here with retirement plans that do not include inflation at all.

I had contact with an old friend and I was bemoaning a bit that my pension pots had gone down, and he agreed his had done the same ( a bit worse in fact as he was a lower risk investor) However he was happy that he had a lot of cash savings ( waiting to buy a property), and the increased interest from them was paying his rent.
The fact that overall his cash savings were going down in value in real terms ( by >10% as he was spending the interest) seemed not to bother him.

Doctor_Who

marycanary said:

Doctor_Who said:

Someone who made a 2%pa real return on their money over the last ten years is going to love the prospect of semi-guaranteeing a 4% real loss over the next one?

 It makes sense for the money you plan to drawdown over the next 1-3 years, but not for the money you plan to drawdown in 10-20 years time. 

That's good advice in general but what about the money needed in years 4 to 9? In my view, it is not illogical for someone needing money over that timescale to place it in cash (particularly for spending in years 4-7). A risk free return of around 6% for 5 years before inflation (currently CPI 7.9%) might look very good if inflation continues to fall. Of course, it's an if. Could it be people in that position who are creating the "noise" about cash?

My main point was about people switching longterm from equities to cash, but your point is valid. The medium term of 4-9 years would typically be a mix of cash and bonds (maybe with some equities), but the exact proportions would depend on your tolerance to risk. There is no one answer for everyone and holding cash for ~10 years comes with its own risks.

mears1

Interesting discussion. Thank you all for your input.

AlanP_2

metrobus said:

The older generation with large savings and low expenditure who do not mind how much they leave in their will are losing nothing and in a lot of cases gaining despite inflation.
Like earlier said inflation is very personal, due to giving up a hobby my outgoings have decreased approximately 10% over the last year and income from pensions and savings etc  increased about 5% .

That is not deflation though is it, it's just deciding to give up a hobby that cost something.

If you normally spend £20k a year but decide to buy a new £20k car you aren't experiencing 109% inflation.