For up to 18 years
Many people when they build up, or get their hands on some cash, look to invest in either stocks & shares or property, or a combination. Fewer people appreciate the slow, yet low-risk burn, of keeping money in a decent savings account. However, a study shows that cash can actually beat shares, for up to 18 years.
Best buy savings accounts
A study has concluded that saving money in best buy savings accounts has out performed that of stock market investment in most investment periods since 1995.
The results showed that Tracker investments would have lost money up to one third of the time, compared to holding cash in savings, which always returned more than it started with.
“People who prefer the safety of cash can make returns that beat those on tracker funds,” Paul Lewis, author of the study.
The study compared results where money was invested into a Tracker fund, following the FTSE 100 index, with cash held in a one year deposit account, transferring each year to secure the best rate.
Performance was tracked in five year periods starting from January 1995 to date, 21 years in total.
Over the full period, investment into the Tracker fund produced a six percent compound annual return, which out-performed the five percent achieved by best buy savings accounts.
However, what was interesting is that up until about 18 years, the cash was a more favourable option and only the last three or so years of the study showed increased performance for the share investment option.
“Over the longer-term shares are likely to do better but I wanted to find out when the boundary is. My research shows that it’s only at about 18 years that the balance turns in favour of shares over cash.” Mr Lewis
The investment industry tends to favour investment in stocks and shares over that of “active” cash, which refers to cash that is being moved around to achieve results.
This study was based on real facts and up-to-date figures, so perhaps the idea that revenue can only be achieved by investment in shares is a dated one?
According to Mr Lewis’s study, an investor simply needs to move their cash into the best buy savings account each year to achieve the results.
Short and long term investment
Generally, with short-term investment, a decent savings deposit account produced better results than edging the risks with the stock market. This is because investing in the stock market can see drops as well as rises, and with a fall in value there is not sufficient time to recoup the losses.
“If you are investing over a short time period, certainly less than five years but arguably less than 10 years, then you should stick with cash,” said Mr Connolly.
Savings accounts also retain good access to your money for flexibility.
In the longer term, rewards are generally higher with stock market investment. Just remember not to put all your eggs in one basket! Also, be prepared to play the waiting game to reap the rewards, which are of course, not guaranteed.
Interested in investments? Speak to Darren
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