The £1/4 million gulf between cash and investments laid bare

Sarah Culver 22/03/2016 in Equities, Income investing

The Investment Association (the trade body of the investment management world) has laid bare the gulf between returns from cash and investments in the era of record-low rates.

Their research has found that savers who left £100,000 languishing in cash accounts paying the Bank of England base rate, since it was cut to 0.5% in March 2009, would have gained just £3,500 overall.¹ But thanks to the higher income levels that can be received from investing in stocks and shares, as well as the roaring bull market that followed on from the crisis, those who invested fared better.

The best performing sector, according to the research, was UK Smaller Companies. £100,000 invested in the average fund in this sector would have resulted in a pot of money worth £334,200 today – a gain of £230,000 or almost £1/4 million¹.

Those investing in the perennially most popular UK Equity Income sector, would have enjoyed gains of £132,400¹.

The research added that UK Equity Income yields have declined only slightly during the seven years of record low rates, and have been a useful source of income for pensioners and an excellent conduit for growth for other investors. The median yield of the sector in 2010 was 4.1%. Today it is 3.9%.²

And it’s not just equity funds that have proved profitable for investors. Each of the five UK bond fund sectors have also vastly outperformed cash over the same period with the highest returns from the high yield sector, which almost doubled your initial £100,000 investment, with £96,000 gains, and even UK government bond funds providing a profit of £43,400¹.

Guy Sears, Interim CEO at the Investment Association, commented: “It is of course impossible to predict what the next seven years may bring, but with good-quality advice and a long-term horizon, more savers may be able to benefit from the profits that investing your savings can offer.”

¹Sector average returns since March 2009 to date in cash versus mainstream investments ²Median yield in 2015

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