The Telegraph highlights a very interesting piece of research.
Detailed analysis of real-world cash returns versus shares over the past 21 years has shown bank accounts left savers better off than stock markets in most scenarios, leaving investors to ask, “have we had it wrong all these years?”
The work by Paul Lewis, financial commentator and long-time host of the BBC Radio Four programme Moneybox, contradicts much of the received wisdom of financial professionals, as well as various respected studies into long-term returns from different asset classes.
His research is unique because it uses returns taken from actual savings accounts and investments available to savers, rather than theoretical figures that don’t take account of charges and market-leading rates that influence returns.
. . .
As its starting point, it looks at all the five-year periods within the 21 years between the start of 1995 and the start of 2016 – there are 192, beginning one month apart – to see in how many of them a saver would have been better off in cash, and in how many they have been would be better off in shares.
Mr Lewis found that in 109 of the 192 scenarios, 57pc, cash won. What’s more, in 46 scenarios, or 24pc, an equity investor would have lost money, something that can’t happen to cash savers as long as they keep within the limits of deposit protected accounts.
This result does not mean, however, that over the entire 21-year period you would have been better off in cash. The annual compounded return from shares was 6pc, versus 5pc for cash accounts.
This is because the gains in the scenarios when shares won were greater than those when cash won.
Even here, though, the return from shares seems unimpressive given the extra risk taken versus cash.
. . .
The confusing picture defies much of the conventional thinking around investing, which has generally been that shares will give better returns the longer you hold them, and that they will easily beat cash in the vast majority of cases if held for more than about five years.
Mr Lewis’s work suggests that, in fact, this only applies over time periods far longer than previously assumed, more like 18 years, and that for holdings periods shorter than that, the results are very mixed with cash generally ahead.
There's more at the link, and at the original article.
That's certainly thought-provoking. I'm not holding any stocks or bonds in accounts I control at present - I went to all-cash holdings a couple of years ago, because of the volatility in the stock market and the uncertainty over the future of the bond market. I've also diversified into precious metals, although being a very small investor, my holdings aren't worth much at all. Nevertheless, I think this reinforces my skepticism over stocks and bonds under present conditions. I think that, unless one's investing for twenty to thirty years or more (something I'm now too old to do with any confidence), they remain at best an uncertain bet.