Well, yes, obviously

British savers have missed out on at least £90 billion by keeping money in savings accounts rather than investing in shares, a leading think tank has said.

The Social Market Foundation has warned that low rates and rising inflation means that savers are losing money by keeping it in cash accounts.

Its report, entitled “Saving Better”, warns that risk-averse savers could be devaluing their own money by trying to keep it safe in low-risk bank accounts instead of investing in the stock market.

Not that the professor of practice will agree.

However, it is risk adjusted return that we’re supposed to consider, isn’t it?

20 thoughts on “Well, yes, obviously”

  1. How much did British savers lose by investing in shares when the economy tanked in 2008? When you’re retired or on fixed income, you can’t afford to take on too much risk. That £90 billion comes from cherry-picking entry and exit times and assumes that putting everything into equities is a sound investment strategy – something that the majority of economic advisors eschew.

  2. The world economy will tank again shortly –but not for the reasons Murphy and his gang think..

    Shares could a very could deal for those who know what they are about.

    Which is not small savers.

  3. Consigning your hard-earned savings to the vagaries of the stock market – not least when you are retired – is a risky business. However, assuming you are fortunate to jump ship at a relatively early age (sixty?), neither can you afford to follow conventional wisdom and play safe – at least not if you hope to spin it out for thirty or so years. Would that there was a magic formula which allows you to get in and out at the optimum time. Alas, like most things in life, risk (and luck) is part of the game.

  4. As stated, this misses the risk adjustment for returns but bear in mind diversification. All assets won’t go to zero together, unless we get global socialism which is a genuine risk in my view.

    If you don’t need your money back in the short term then equities is the way to go – provided you can invest or hold through the cycle – so you need to establish a base level of income and stick the rest in higher risk assets. Same principle for insurance companies.

    Of course now DB schemes have died, interest rates are low and all money gets spunked kn housing getting to a secure level of income takes a large proportion of your savings.

    Lesson is, if you can afford it, save into your kids stakeholder pensions – get 20% tax relief on first couple of thousand and benefit from decades of compounding.

  5. Investors missed out on a fortune in the 1970s by not backing Red Rum to win the Grand National in 1973, 1974 and 1977 and betting on him to place in 1975 and 1976.

  6. Andrew again has a point about pensions. If you were fortunate enough to be able to save £2,800 a year on behalf of your children into a pension between birth and 18, even the dullest of stock market investment plans ought to see them start adult life with a pension pot of over £100k.

    Their only problem after that would be how quickly they hit the Lifetime Allowance.

  7. @Andrew again
    “Of course now DB schemes have died, interest rates are low and all money gets spunked kn housing getting to a secure level of income takes a large proportion of your savings. ”
    Very true. I took what people needed to buy a house in my road in 1997 and increased by inflation using an inflation calculator and it came to a mortgage of £800pcm. I then looked at the real cost and it is £1800 pcm. That difference would have helped to get a really decent pension.
    (I didn’t even include the extra cost of stamp duty which could be a lot over a lifetime, 3 moves could a years’ earnings).

  8. What an incredibly useful piece of research.

    I can’t wait until their next report in 2025 telling me what the best way of saving was in 2018.

  9. AndrewC,

    > start adult life with a pension pot of over £100k

    It’s all very well having a good pension pot, but I suspect most young people would much rather have that money for a deposit for a house. They might even choose to use it to pay their uni fees, if they can’t get an investment which returns more than the 6.1% interest currently charged on student loans.

  10. “it is risk adjusted return that we’re supposed to consider”: indeed, but what do we know about future risk? In fact, should I even accept the financial world’s odd definition of risk?

  11. Andrew again,

    > save into your kids stakeholder pensions – get 20% tax relief

    Or save into your own pension and get 40% tax relief. Then when you hit 55, withdraw 25% tax-free, and hand it over to your kids for that deposit for their house.

    The average father is aged 33 at the time of their child’s birth. If you take your 25% tax-free at age 58, your average child will be aged 25, perfect time for getting on the housing ladder.

  12. People have very different risk preferences and time horizons.

    Saving up to buy a new car in a year or two? Traditional advice is don’t go putting that in the stock market.

    Saving up to buy a new house in 4 or 5 years? Probably don’t want to go putting that in the stock market.

    All retired and saving up for whatever eventualities old age throws at you? You probably don’t want to putting all of that on the stock market…

  13. Andrew M – there again that leaves you with the square root of FA given low level of lifetime allowance compared to annuity rates.

  14. “something that the majority of economic advisors eschew”

    I get a few letters every month inviting me to free dinners at nice restaurants to hear financial advisors tell me “the secrets of retirement.”

    I smile. They are working. I’m retired. If they had half a brain, they would be ASKING ME for advise. If it were really about retirement. They are trying to sell a service.

    They always include two tickets. Their schtick is to get the wife in there, and SCARE her, such that she demands the husband sign up. Cos he’s an igit.

  15. @BlokeinBerkshire,

    Obviously if you’re in danger of hitting the lifetime allowance, then my plan doesn’t work. But there’ll be plenty of people not far over the 40% tax band, who’d be better off paying into their own pension and save 40%, rather than pay into their kids’ pension and only save 20%.

  16. Social Justice Warrior

    Financial Advisors tell me that long-term investment in equities is a sure winner. And I tell them not if you bought the Nikkei in 1989, when it was at about twice today’s level.

  17. @AndrewM. Sorry. You caught me out as my perception was clearly that one should maximise ones own pension first. We can afford to fill my pension, our ISAs and the kids pension and ISAs as well. We are lucky but also aware that my children will struggle to put money to pensions now so best save for them in a form that means they can afford to take risks earlier knowing that a secure fund is there for them.

    I hate getting caught by the massively reduced LTA and the now massively reduced annual allowance is a real issue now. The bastards have firmly pulled up the drawbridge and sit behind their special civil service pensions. Bastards. Bastards. Bastards. How dare we be lectured on cash savings losing value instead of being please people have managed to save. The ultra low rates and negative real rates are killing saving and expectations of the flute are so poor people want cash just in case. That is an appalling indictment of the technocrats and their compete inability to run a whelk stall.

  18. @SJW. Good point about Nikki, or Japanese property for that matter. Indeed buying constantly over a long period and opportunistically in down patches makes better sense.

    Bubbles, blown by central banks or irrational exuberance, are destructive for much wealth and it takes a long time to earn it back if you buy in the peak and sell in the trough.

  19. @SJW

    Yes. In some ways an even better example might be being invested in the Shanghai Stock Exchange when it reopened in 1946. Come 1949 and the communist revolution, that would have been the end of your investments. Similar story for the St Petersburg Stock Exchange, 1917. Not even any chance of making up your losses if your stocks recovered in future – it’s all gone.

    When people calculate the average long-term returns from investing in emerging market equities, such instances of political risk tend to be excluded.

  20. @Andrew again

    I fear that saying we should buy during “down patches” requires knowing whether we are really near the bottom of the market, or simply a wee bit down from peak. Look back at the graph in 12 months’ time and we may find that the “down” patch was near the top…

    Shares are an easy way to get rich, so long as you can buy at the bottom and sell at the top, and you can discern the scrappy handwriting of your time-travelling future self so you know which is which. Misread it once too often, and you’ll never make enough to afford that time machine in the first place.

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