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15 Jun 2016

Cash has beaten shares for the past 21 years, study finds

A new study has concluded that money held in best buy savings accounts has done better than the stock market since 1995, the BBC News website reports.

The research was conducted by Paul Lewis, author of the study and presenter of BBC Radio 4´s Money Box programme. Lewis compared returns from a tracker fund following the FTSE 100 share index, with cash that´s moved every year into a best buy one year deposit account.

Looking at the money from 1 January 1995 to the present day, it was found that savings overshot the tracker in most five-year periods during this time. However, the tracker did produce a higher compound annual return (6%) than the savings accounts (5%), but only by a small margin.

Lewis noted that cash in a savings account will always end up more than what it started, and that investments in tracker funds would have lost money in approximately one third of instances. This means that “People who prefer the safety of cash can make returns that beat those on tracker funds,” he noted.

Stressing that over the long-term shares are “likely to do better”, Lewis set out to discover where the cut-off point was. His research suggests that “it´s only at about 18 years that the balance turns in favour of shares over cash.”

The investment industry has long believed that shares outperform savings over a long period of time, but Lewis argues that this could be based on inaccurate data, stating: “I have long suspected that the merits of cash were underplayed by traditional research which compares poor cash rates with often exaggerated gains on investments in shares.”

In order to get the best results, Lewis advises moving savings each year into the latest best buy account. However, other experts are skeptical of this approach, with Hargreaves Lansdown´s senior analyst Laith Khalaf saying that continually moving money is “a very appealing idea, but is difficult to achieve in practice.”

Meanwhile, financial planner Patrick Connolly argues that it´s not wise to assume that you´ll always be able to access the best paying savings account year after year.

Both experts did agree, however, that in the short-term - ten years or less - savers would most likely be better off keeping their money in a decent savings account.

Copyright M2 Bespoke 2016

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