Reply to: Cash beat Shares from 1995 to 2015

[yasockie]

How does this compare to say investing in London housing?

[pjclarke]

In charts: danger of trying to time markets

[lukemg]

Get a global tracker - you would have smashed it...

[northernladuk]

NLUK has thanked you and liked it because he's completely out of his depth and now thinks that you have more brains than Kurt Cobain's garage wall.

This

[LondonManc]

Main conclusion:-




A couple of points, the analysis seems to be to have taken an average Index tracker fund (in terms of charges) and compare it to the best 1 year deal available for cash, over various periods. But they only seemed to have looked at which 'won' or 'lost' rather than adding 'by how much', though this will be catered for by the analysis over different period lengths. I would have expected the tracker to have done better as the periods got longer, but they won decisively in short periods but in only 6% of 15-yr periods, rising to 100% of 20yr periods , though obviously the sample size is smaller.



However, I am not sure the last conclusion is backed up by the evidence.



Worthwhile reading for anyone investing for the long term, but I don't think you can apply the conclusions in the current low-interest, low-inflation climate for two reasons: firstly the base rate is at a record low of 0.25%, and seems to be stuck low. I would guess it averaged more like 5% over the study, which would favour cash, its hard to get a real positive return from cash right now, and secondly charges on passive funds have come down a lot due to competition in the market. The HSBC fund they chose currently has an annual charge of 0.18% (almost certainly higher in previous years as they concede and Any annual charge has a profound effect over the longer term. to quote the report) and you can buy a FTSE tracker now from the likes of Vanguard for 0.08%, less than half price.

I will not be locking my money into cash any time soon.

NLUK has thanked you and liked it because he's completely out of his depth and now thinks that you have more brains than Kurt Cobain's garage wall.

[pjclarke]

Main conclusion:-

The data presented here allow the boundary between cash and shares to be set at around 18 years. Less than that there is a better than evens risk that a shares tracker will produce a lower return than a series of best buy cash accounts. For periods below 12 years there is also a risk that a shares investment will lose money. Overall, for a random date and a random investment period the safer bet is active cash rather than tracker shares.

A couple of points, the analysis seems to be to have taken an average Index tracker fund (in terms of charges) and compare it to the best 1 year deal available for cash, over various periods. But they only seemed to have looked at which 'won' or 'lost' rather than adding 'by how much', though this will be catered for by the analysis over different period lengths. I would have expected the tracker to have done better as the periods got longer, but they won decisively in short periods but in only 6% of 15-yr periods, rising to 100% of 20yr periods , though obviously the sample size is smaller.

Adding all the data for all investment periods from one to twenty years cash wins in 55.7% of the 2520 periods and shares in 44.3% of them. Overall cash beat shares.

However, I am not sure the last conclusion is backed up by the evidence.

Over the whole 21 year period the tracker out-performs cash. £10,000 invested in a tracker on 1/1/1995 becomes £34,098 by December 2015, a compound growth rate of 6.0% a year. Cash achieves nearly £6000 less finishing at £28,105, a compound growth rate of 5.0%. But the low difference between the risk free cash and the risky shares is striking. Bodie*(Financial Analysts Journal May-June 1995 pp. 18-22)*finds that the risk of investing in shares does not diminish as time invested lengthens.

Worthwhile reading for anyone investing for the long term, but I don't think you can apply the conclusions in the current low-interest, low-inflation climate for two reasons: firstly the base rate is at a record low of 0.25%, and seems to be stuck low. I would guess it averaged more like 5% over the study, which would favour cash, its hard to get a real positive return from cash right now, and secondly charges on passive funds have come down a lot due to competition in the market. The HSBC fund they chose currently has an annual charge of 0.18% (almost certainly higher in previous years as they concede and Any annual charge has a profound effect over the longer term. to quote the report) and you can buy a FTSE tracker now from the likes of Vanguard for 0.08%, less than half price.

I will not be locking my money into cash any time soon.

[northernladuk]

On the hope that you'd managed to read it so it would save me doing so you clunge fraggle.

But you've made me look like a right pillock cause I didn't read it either. Just sounded intelligent so thought I'd post it

[LondonManc]

So why are you asking questions then you cock womble.

On the hope that you'd managed to read it so it would save me doing so you clunge fraggle.

[northernladuk]

I spent all my cash with NLyUK. On the advice of my accountant.

For once you'll be hoping you don't get any returns 9 months after your initial deposit......

[northernladuk]

Thank you.

While TL;DR may have been too long so you didn't read it, the DR bit meant that I, well, didn't read it!

So why are you asking questions then you cock womble.

[BlasterBates]

The comparison is not very good as it simply compares the number of periods where cash beats shares and vice versa, and that a lot of the time cash beats shares. But as you can see from one of the graphs the shares bounce up and down and when they go up they go up much higher each time.
eg

This is my experience roughly:

Year 1 Year 2 Year 3 Year 4 Year 5
cash 100 102 104 106 108
shares 100 76 85 95 130

Yes shares lose quite a lot of the time but they generally find their way up eventually.

[BrilloPad]

I spent all my cash with NLyUK. On the advice of my accountant.

[LondonManc]

Erm.. Well the first paragraph in the first link says..

Thank you.

While TL;DR may have been too long so you didn't read it, the DR bit meant that I, well, didn't read it!

[northernladuk]

TL;DR - does it take dividends into consideration or just share prices versus cash value?

Erm.. Well the first paragraph in the first link says..

The new research compared returns from a simple tracker fund – which follows or ‘tracks’ the FTSE100 index of shares in our biggest hundred companies – with cash that is moved each year into a best buy one year deposit account with a bank or building society – sometimes called a ‘one year bond’. The tracker has dividends reinvested and the cash is reinvested each year with the interest earned.

[LondonManc]

TL;DR - does it take dividends into consideration or just share prices versus cash value?