Cash ISA savers miss out on £2,000 of returns in just five years
Over the past five years, £239bn was deposited into cash ISAs with savers sharing a maximum of £15.9bn of returns.
However, while less was invested in stocks and shares ISAs at £101bn, assuming investments tracked the MSCI World Index between 2012 and 2017, investors would have seen returns of £26.1bn.
As such, UBS SmartWealth that conducted the analysis, calculated that if all money was invested in a stocks and shares ISA, the cumulative return would have been around £87bn. As the total cumulative return on both cash and stocks and share ISAs was £42bn, this means had cash ISA money been invested, UK savers would have been £46bn better off.
On an individual basis, given there are 21.6 million ISA savers in the UK, this means an average return loss of £2,132 in five years. However the figures don’t include investment fees.
As the MSCI World Index returned nearly four times as much as the best paying cash ISAs in the five-year period, UBS SmartWealth also provided calculations of returns where money was split equally between cash and stocks and shares:
- For the cash half of the portfolio, savers would have £72,662.69, having put in £68,280. A return of £4,382.69
- For the stocks and shares half of the portfolio, investors would have £85,705.57, having put in £68,280. A return of £17,422.57.
Nick Middleton, head of UBS SmartWealth UK, said: “As a nation of savers, we’re addicted to cash. It’s not healthy to have so much of our wealth in an asset that has been returning so little. Low interest rates are the new normal, but savers still haven’t adapted. As a result, they have collectively lost billions.
“Anyone saving for a period of more than a few years should strongly consider going cold turkey on their cash addiction by consolidating their ISAs into stocks and shares.”
Nervous about stock market volatility?
Stock markets had a pretty smooth ride in 2017 but volatility has returned this month, meaning investors – particularly those taking their first steps into investing – may be nervous.
Given the current climate, it can be hard for investors to know where to invest and what to buy.
Adrian Lowcock, investment director at Architas, provides three ISA fund ideas for volatile markets, aiming to offer some protection for cautious investors:
The US market is one investors can’t afford to ignore. The US is still the world’s largest economy and accounts for over 50% of global stock markets by value. Over the past 20 years the S&P 500 delivered more than double the return of the FTSE 100. However, the US market has been expensive for some time and valuations in some sectors are high.
Artemis US Extended Alpha fund is able to use tools to buy or sell investments it does not hold (go short) which means the managers are able to potentially profit from those expensive areas of the market as well as offer some protection to investors from sell-offs.
The team, led by Cormac Weldon, have an excellent knowledge of the wider economic picture in the US and use this to generate broad themes which are then used to guide stock selection ideas. The fund has a growth focus but should also be able to protect investors in weaker markets. This late in the economic cycle a long/short fund is attractive as the quantity of shorting opportunities should be greater.
Target Absolute Return
The sector is often the source of much criticism some of which is justified. However, absolute return funds can have a useful role to play in a portfolio. They offer diversification, reducing volatility and risk, protecting investors during weak or volatile markets as well as delivering good returns.
Unlike many fund managers, the team at JPM Global Macro Opportunities fund focus on global macro trends as they believe these are the main drivers of returns for asset classes and they look to identify and exploit these with the aim of delivering positive returns across all market and economic conditions. The fund has a focus and preference on capital preservation.
Current themes include Japanese economic recovery, global political divergence and China in transition. The fund will invest in cash, equities and bonds and will use derivatives extensively to go short (sell) a sector.
Bonds have become riskier again as interest rates are already rising in the US with the UK looking increasingly likely to follow suit with further rate rises possible this year. Inflation fears have also returned causing havoc in stock markets. In this climate, investing in bonds is much more challenging but investors still need to hold a diversified portfolio and many still look to bonds for that as well as the income they provide.
TwentyFour Dynamic Bond fund is run on a team basis with each member having specialisms within the fixed income asset class. The investment committee establish the bigger picture view of the world leaving the managers to decide how and when to reflect this within the fund. This allows the team to be dynamic and have the flexibility to go anywhere in the fixed income space. As such this could be considered a best ideas fund.