‘Investors remaining in cash risk poor returns’ – Royal London

Written by Oliver Wade

Investors that are remaining in cash long-term risk poor returns and a loss in purchasing power, compared to investing in the stock market, according to research conducted by Royal London.

The warning comes after recent updated figures from HMRC illustrate that at the end of the 2016/17 tax year the value of adult ISA holdings stood at £585bn, 10% more over the value seen at the end of 2015/16. However, the firm reported that this increase was “driven” by a 20% increase in the market value of funds held in stocks and shares.

The analysis further showed that, while cash returns are “lagging” behind those to be found in the stock market, long-term cash returns also do not “keep pace” with inflation and erode purchasing power over time. Holders of cash ISAs have experienced an 11.5% cut in terms of what they can purchase with their money since 2006/07.

On the other hand, those who invested an equivalent amount in a multi-asset fund would have increased the value of their money by almost 48% over the same ten-year period.

Royal London personal finance specialist Helen Morrissey commented: “It is understandable that people will want to keep money in cash ISAs where they can access it easily but they need to be aware that returns from cash are not currently keeping up with inflation and could erode purchasing power over the long term.

"If people are looking to generate decent returns over the long term they will need to look at investing in a wider range of asset classes. Our analysis shows that cash ISA investors have missed out on a whopping £181m in returns compared to multi asset investors since 2006/07.”

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