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Cash vs shares

Paul Lewis in an article in the FT on 18/6/16 (Cash v stocks: the winner may surprise you) has uncovered something that people need to be aware of.

The fund management industry attracts savings in the form of ISAs and pensions on the basis that it can outperform. But does it offer the saver any level of comfort that this will indeed be the case?

In his article Mr. Lewis compares cash savings returns with those from shares. His tentative conclusion is that for periods of up to 20 years cash beats shares and if you do buy shares low cost index trackers are best.

This appears to be contrary to what the public get told by financial advisors. Why? Because the comparisons made that support the case to buy shares do not compare like with like.

Lewis goes on to explain that cash can be deposited at the best buy rates year in year out. These rates are significantly higher than T-bill rates. But it is T-bill rates that are often used to compare cash and share returns. Furthermore funds incur fees, commissions and dealing costs. But these costs are frequently ignored in calculating share based returns.

In other words comparisons made between cash deposits and fund based investments are skewed to make funds look significantly more attractive than they really are.

For many sitting down once a year and reinvesting in a best buy fixed rate account will provide the best and safest return.

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