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Paul Lewis: Cash beats shares and here’s the proof

Paul Lewis

You may have seen the headlines over the last week or so reporting on my new research into cash versus shares, stating the former beats the latter. In fact, the results are more nuanced.

For investments over five years beginning any date between 1 January 1995 and ending up to 1 January 2016, there was an almost six to four chance (57:43) that you would have done better in cash. The research also found there was about a one in four chance (24 per cent) that your investment would be less at the end than at the beginning.

For other investment periods – I looked at all time frames from one to 20 years – the results were equally surprising. Cash won more often than not over most of them, sometimes by an even bigger margin.

For those of you in a state of shock, let me administer some fresh air. Shares beat cash at 18 years and over the whole 21 years. The compound return on shares from 1995 to 2015 was 6 per cent, while on cash it was 5 per cent. A £10,000 investment on 1 January 1995 would make £6000 more in shares than cash by 1 January 2016 – £34,100 versus £28,100. But that 1 per cent difference is a much narrower margin than is typically quoted for the so-called risk premium.

Last October I stuck my head above the parapet and tried to persuade Money Marketing readers of the merits of cash – in its place, for the right client, at the right time and for the right duration. Good advisers understood what I was saying and some agreed with me. Of course, all good advisers are willing to humour the apparently eccentric choice of clients who want their money to be tucked away safely and boringly in cash rather than at risk in shares or other investments.

But many of you remained sceptical and made strong comments about just how wrong, daft, misguided and even dangerous I was to suggest cash could ever equal, never mind surpass, shares.

I am returning to it now because, in the nine months since that article appeared, I have obtained crucial new data, redone my calculations carefully and had them thoroughly checked by an actuary, an investment specialist, a data provider and a comparison website. All of them agree the new data is important, the calculations are correct and the outcomes interesting. One adviser who said last week he would “pull the whole thing apart” examined the original data and recently wrote to say: “As much as I hate to say it, I found that you were right”. Though, to be fair, he did have many reservations about what conclusions could be drawn.

The research compared the returns produced by a simple FTSE 100 tracker fund and active cash. Active cash is a simple idea. On day one you put your money into the best buy one-year deposit account. That guarantees you a known rate of interest fixed over one year. A year later you take the money out and put it into the best buy one-year account at that time. A year later you do the same again, and so on until the end of the investment period. It takes minimal effort – perhaps 20 minutes once a year – and no judgement at all, except deciding which interest rate is the highest.

I chose a FTSE 100 tracker because it represents the market and has the longest run of continuous data I could get. There are many other trackers but my criteria – longest data run and something an unadvised investor would have used in 1995 – indicated the FTSE 100. Morningstar provided data for me back to 1995 for the HSBC Retail tracker. Dividends are, of course, reinvested.

Cash data is more difficult to find. Moneyfacts was the first to document savings rates from 1988 in its monthly periodical. No data before 2007 is available in digital form. So Moneyfacts kindly allowed me to take down the data from the magazines in its archives. No one has collated that data before. This research is the first analysis of the returns on savings using best buy data. Others have used Bank of England averages, “typical” savings accounts or Treasury Bills, which are not cash at all.

All of them seriously underperform best buys. Today they show a return around 0.45 per cent, whereas best buy cash returns 1.45 per cent easy access or 1.66 per cent on one-year accounts. The other problem with many studies is that they ignore charges on shares investments. That exaggerates the return. I reckon those two errors understate cash and exaggerate shares by about 1.25 per cent in both directions.

Using real returns after charges on a FTSE 100 tracker and best buy cash, the research found that cash won a majority of times over all investment periods from five to 17 years. The figures were 57:43 over five years, 70:30 over seven years, 96:4 over 14 years, 63:37 over 17 years. Over all the 2520 investment periods of one to 20 years, cash wins 56:44. Only over 18 years and above did shares win comprehensively.

So there it is. The data. My conclusions? Best buy cash deposits can give market trackers a run for their (in fact, your clients’) money for periods up to 18 years. Advisers should consider them and investors should ask about them – especially when they are old and may not have 20 years to wait.

Before you bang off “yes, but…” and “what if?” comments please read the full research at which will answer most questions, including: inflation, tax, time lags, crashes, other trackers and whether the last 21 years was typical.

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programmeYou can follow him on Twitter @paullewismoney


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There are 40 comments at the moment, we would love to hear your opinion too.

  1. I wonder what the conclusion might be if Mr Lewis compared his numbers against Neil Woodford (both IP and his own company)? And what about long term against the likes of Troy Trojan and Ruffer Total Return or the Fidelity Moneybuilder Balanced fund?

  2. “You may have seen the headlines over the last week or so reporting on my new research into cash versus shares, stating the former beats the latter. In fact, the results are more nuanced.”

    Headlines like “Paul Lewis: Cash beats shares and here’s the proof” you mean?

  3. @moneymarketing please can you publish the Abraham Okusanya paper on this subject?

  4. The one fatal flaw in Paul Lewis’s argument is the failure to take account of the various tax-free wrappers such as ISA’s (of various kinds) and SIPP’s etc. which receive and accumulate dividends and interest gross.

  5. Chris Gartside 23rd June 2016 at 2:35 pm

    Why is Paul Lewis always so miserable? His demeanour detracts from his comments. Just an opinion!

  6. Not surprising really, and sadly this may also be a reflection of the capitalism deficit demonstrated with UK listed companies, where bonus pots often outstrip dividends paid, and the rewards due for the risks taken with investors’ capital seem to accrue to executives rather than shareholders.

  7. Eric Armstrong 23rd June 2016 at 2:46 pm

    Interesting! However I don’t agree with headline ‘cash beats shares..’. If you were advising/investing you would ALWAYS have a diversified portfolio – putting fixed income alongside your equity – a balanced portfolio. The comparison could have been done on that basis and I’m sure results would have favoured investment.

  8. The problem with this research is it goes completely against where someone with a vague investment knowledge would invest. It would make far more sense to invest in a diversified portfolio spread across many regions and sectors, whether this be an asset allocated portfolio (more likely to be recommended by a financial adviser) or a managed fund (more likely to be invested in by a retail investor). Say, for example, you had invested into a managed fund – Baillie Gifford Managed (A Acc) (as it has a long track history dating back to 1988) – now this fund compared to the HSBC FTSE 100 Index (Ret Acc) has outperformed 7/10 years to last quarter end! The issue with this research is it looks at the best cash rate available each year but makes no effort to pick the best fund, let alone review it each year!

  9. How about picking a suitable investment to compare it with? No sensible investor would select a FTSE100 tracker as their investment option. Not because it is a tracker but because the FTSE100 is a consistently poor index to track. It lacks diversification and has had over 20 years of underperformance relative to most other Western economies. The comparison would have been better made against a multi-asset fund (something out of the 40-85% equity sector which is where most people find their money invested). At the moment, this just looks like picking the best cash options vs a pretty awful investment option

  10. Neil Liversidge 23rd June 2016 at 3:15 pm

    Yeah yeah yeah, whatever. I’ve just been working on a case where we invested an elderly couple just short of five years ago in a cautious to medium risk portfolio of our own design. They’ve had 4.65%pa compound net of all costs since then, over a period of 4 years 11 months. on top of that, when we took them on, we discovered the lady had been having interest deducted on an M&G unit trust invested in UK fixed interest. She’d bought it herself – unadvised – many yeas before. She’d not ISA’d it. She was a non-taxpayer. We got her the previous 6 years’ tax credits back from HMRC which, coincidentally, almost covered our initial fee on the investment we did for the both of them. My clients aren’t much bothered about what theoretically might have been achieved with hindsight Paul, just the results we’ve actually delivered. I don’t know any cash account that would have delivered 4.65%pa compound net/tax free in the last five years along with instant access if they’d wanted it.

    • jusr a reminder for Paul Lewis, but had the client had more than £32,500 on deposit with ANY bank who collapsed in 2007, were it not for the artificial balout of the BANKING industry, the clients best buy would have been worth precisely £32,500 the day after as that was the FSCS limot at the time. It is now £75k, so anyome with more than £75k on deposot with ome bank is an idiot!

  11. What the research doesn’t prove or show is how you can get away with publishing the same tripe in different publications in the same week! Presumably you get paid (at least) twice for the same article in different publications? Just go to show those we should all be trusting journalists with ZERO qualifications rather than trusting financial advisers.

    Maybe you should do the same analysis on the wonderful advice offered by a fellow journalist, a Mr Martin Lewis when he was recommending, sorry i mean giving his personal opinion that had absolutely no regulatory comeback on him, that everyone should be investing in Icelandic banks.

    Seriously, why is the MM giving this man any column inches? Unless of course they aren’t paying him.

  12. I would not use a tracker fund, we generally look for mixed asset solutions.
    You would be hard put to find cash beating these funds.

  13. I think Paul has done a very through job. The conclusions are thought provoking and a good sense check against the well known annual study. The one point I’d query is whether it is realistic to expect the ‘best buy’ cash opportunity to have actually been available to many savers/investors – as typically deposit takers offering fixed rate/term deposits only have a finite capacity to offer at that rate.

  14. you’re really not that bright are you Paul? Fancy wandering into the lions den with a rolled up newspaper full of skewed results to defend yourself with! Take some meat in with you next time!!

  15. Comparing ‘active cash’ with ‘inactive investment’ is a fatal flaw in this study. Fair enough someone might shop around for the best cash rates, why wouldn’t they do the same for investments.

  16. The sentiment behind the report was interesting but the proof is flawed and unfortunately misleading. As Nick Bamford said check out Abraham Okusanya’s paper on the subject. Either way odd that this report is being published when it’s been proven that Paul’s research is incorrect and misleading.

  17. In fact the report should be called “Cash beats an index fund with a huge tracking error which was limited to one particular index”.

  18. The HSBC FTSE 100 Index Retail Tracker appears to have been an expensive fund in the past and over the past 20 years has underperformed both the FTSE100 index and the IA UK All Companies sector by about 85% over that timescale. (Source: Finanacial Express) If the average UK fund were used in the anlaysis that would tilt the data back in favour of equities over more but obviously not all 5 year periods.

  19. Peter Blackburn 23rd June 2016 at 4:01 pm

    On Paul Lewis’s Cash Vs Equities Research – See Abraham Okusanya’s response here –

  20. I’d be interested to know what your starting position was for this comparison. Were you trying to prove Cash produces better returns than shares / investments or to make a fair comparison of the two? This could have been really insightful research but I am disappointed that a person in your position to influence so many of the general public has not made a like for like comparison. Why compare the very best deposit rates each year against a passive investment fund? It is unlikely any investor sensible enough to research the best deposit rates year in year out would settle for and not review the performance of a FTSE 100 tracker fund or hold a diversified investment portfolio. It makes me question the unbiased nature of the research.

  21. I have been on the receiving end of the old IFA mantra – shares outperform in the long run; but being analytical, I had taken a look at the old Barclays gilt-equity survey and found that hadn’t been true for (then) 15 years, and (now) the thick end of 25 years. Natch, the guy refused to accept my evidence to prove his tired old sales pitch to be folly, but it denial isn’t truth.

    Of course Paul L can pick his time periods to maximise the impact of the statistics like we all can and do, but I certainly had formed the impression that in the period running up to 2009/10, cash had outperformed most other assets net of expenses. Here’s why. The returns on cash reflect the returns on lending, mainly on mortgages. During the run up to the financial crisis, this lending (on the depositor’s behalf) was on terms that became increasingly risky, to…ur…drive up returns.

    But of course risk usually means some losses, and depositors who had enjoyed market busting returns should have lost a proportion of their money when the banks lost a proportion of their loans. But we don’t do that here (unlike Cyprus) and so the FSCS/Government subsidised those losses and, hey presto cash wins because it is subsidised. Cash had outperformed most other asset classes between 2002 and 2010. I’m not yet sure that cash has outperformed since 2009, nor that the argument can hold for the future. But you never know when another banking failure will be a-comin’.

  22. Julian Stevens 23rd June 2016 at 4:33 pm

    Just looking at some basic FE Crown statistics (back of Money Management magazine), Old Mutual’s Global Equity fund over the 5 years to 1st May 2016 is shown as having achieved average annualised growth of 13.6% and, over 10 years, an admittedly more modest 7.6%. What cash investment has delivered anywhere near these levels of return over the same periods?

    I’ve no idea what the average annualised growth on my own (mixed) retirement/savings portfolio has been (because of the varying amounts I’ve invested into it over the past 20 or so years) but what I do know for sure is that it’s worth several times the total of what I’ve put in and that such a result couldn’t possibly have been achieved if I’d stuck solely to cash. To have stuck solely to cash would have been plain stupid.

    I have a pair of clients who’ve been drawing from the investment portfolio that I arranged for them (after the first year) income of 5% p.a. (tax free). Today (I’ve just checked) it’s worth about 25% more than the sums originally invested. What cash investment could possibly have done that?

    Still, you can make statistics tell any story you want, if you want. It’s just a mater of being suitably selective.

  23. Paul whilst I respect your findings they are very much slanted to gaining you maximum exposure, as is the research.

    I wonder, if we asked the industry/fund managers to produce the same reports, using all mixed asset investments, the best and the worst, would they still come to the same result? I wonder, shall we ask the regulator to undertake a full review, publish their own findings I personally would welcome this.

    To the uneducated you are stating as fact that cash will return a higher return then investments, which is as irresponsible as stating investments are always safe. You have not explained the many investment alternatives fully, you have concentrated on certain asset classes and geographical investments. You have many consumers flowing your every word and such behaviour is irresponsible.

    I wonder if you would be so keen in publishing your thoughts and findings as fact, if your readers could claim against you in 20 years time. I wonder if the law courts, FOS would see it your way, a certain case springs to mine Nestle v National Westminster Bank plc. Also certain regulatory statements “Past returns are not an indication to future returns”, being one of them.

    It is very easy to make such statements when all that can happen to you is you will need to say, sorry I was only saying. If a regulated adviser, bank or life insurance company published such statements the regulator would be all over them, with a large fine to follow.

    Maybe I’m wrong, maybe you are questioning AUTO Enrolments cheap tracker funds, but I doubt it. Just like Martin Lewis when he attacked Critical Illness policies, you have not thought of the consequences just gone for the headline and getting your name in lights. The result of that TV statement was a client of mine canceled his policy, then had cancer (which would have been covered) and lost his home. Of course he had no claim against Martin Lewis as he is not a regulated adviser. Maybe we would respect you if you became regulated and still wished to publish article, gave actual regulated advice you were liable for.

    You are doing more harm to the consumer than good and you certainly have not been honest with your research, just very selective as always, which is a shame, as you are actually doing more harm than good.

    Whilst you findings are reasonable based on the assets compared, the headline, insinuation made are overall misleading and dangerous. I wish sometimes you would think before you releasing such articles. They may get you maximum exposure, but have you really thought of the consequences?

    • Agree with you 100% .The irony for us as advisers, is we probably explain more and advise less than Paul Lewis does with his way of implying he is just a journalist, he has nothing to “sell”.
      Paul needs to consider bias, see

    • Thank you Paul for an interesting assessment of cash vs FTSE 100 Tracker Fund and clearly the exercise was worthwhile to prove that ‘managed cash’ can have a place in a portfolio.

      Personally I would be very interested to see this study expanded upon using more data sets to improve to validity of the points raised using the manage cash approach. Clearly the 5% average return is a surprise to me from 1 year managed cash solution. Is this a consequence of the pre-financial crisis securitisation process distorting the interest rates on managed cash?

      On a less serious note, could Paul’s actuary rerun the assessment taking into the cost of postage and the phone costs associated with chasing up the incompetent banks?

  24. I can see where Paul is coming from here and I agree with him – hear me out. The analysis compares cash with a tracker approach. However I think it would be reasonable for any client to expect better than average (tracker returns) if they are paying for and following their advisers advice.

    What the article does highlight is that where you have the client who believes their self managed investment strategy is absolutley the greatest thing since sliced bread, the reality is that whilst it is indeed true – they are not paying for any advice which they see as being unnecessary, they are probably only getting average returns.

    I have dealt with a couple of clients recently who have fallen into this trap. One very wealthy client who percieved advice as expensive and how could we possibly do better was surprised when the analysis of his existing self invested / managed portfolio showed that performance almost exactly followed the FTSE 100. When asked about his investment stratgey and how much time he spent on it, the answer was ‘oh about half an hour a week and I have tended to invest into what appeared to be the ‘flavour of the month’ or the latest financial article I had seen’ In other words – there was no stratgey, so not surprising then really that he was achieving ‘average’ returns.

    Another prospective client was totally shocked when the analysis of their DFM managed portfolio showed that they had tracked (below the average) the FTSE 100 over all time periods examined. When I asked them, they said that they felt something wasn’t quite as they had expected but couldn’t put their finger on it.

    It is fairly easy with the tools and systems now available to provide this type of analysis but better still – get the prospective client to do it themselves. Having already discussed the benefits of advice and how this can add value, including how their investment stratgey might better be geared towards delivering what they actually require rather than what they think they might want, the issue of adviser fees suddenly wasn’t an issue anymore.

    Sure – you have to be able to demonstrate how you are adding value and when one day you come across that prospective client for whom you think to yourself – ‘no, you’ve got everything spot on – there is nothing i can do to add value to what you already have’ then tell them so. I have several clients where the advice and overall strategy consists of cash based investments. These clients are not paying for me to make them heaps of money that they will never spend. They are however happy to pay for someone to advise them and ensure they remain financially secure and do so without taking unnecessary risks

  25. The FTSE 100 only makes up around 5% of global equity investible assets. The FTSE 100 is therefore not “the market”.

    It has under-performed it’s All Share friend (the UK market) which was easily accessible to retail investors during your comparison via L&G UK Index or HSBC UK All Share. You have conveniently ignored these funds because it suits your objectives to do so.

    The FTSE 100 is incredibly concentrated to the top 10 holdings unlike it global peers.

    The fund you have used for comparison now costs a fraction of its own costs in the past. In fact the UK market can now be accessed @ 0.06.

    The MSCI and FTSE World indexes (the market) have significantly out-performed their UK index peers. These indices are now easily accessible for 20/25 Bp’s.

    Investment markets have an uncanny knack of reverting to the mean over the longer term. Write of the FTSE 100 (compared to cash) at your peril.

  26. I think Paul needs to read Systematic Trading by Robert Carver. There are various flaws in this research not least, FTSE100 is effectively a momentum strategy. For a true backtest one would need expensive data with the historical components of the index for each period being tested otherwise your data is massively skewed in favour of today’s ‘winning’ FTSE100 members. Then don’t get me started on walk forward analysis etc.

  27. I would also like to add that the average investor achieves average returns, regardless of the asset class, this is basic arithmetic and therefore fact. To compare potential returns of an index (net of historic costs) against the highest possible returns achieved in the past by cash is like comparing opposing opinion on brexit/remain!

  28. Index funds are vastly over-rated and markets would fail if everyone switched to tracker funds as they make no allowance for the quality of the component companies. Buying an index supports the zombie companies that should otherwise be falling out of the index.

    Journalists typically start by saying something like, “75% of active funds underperform their index”. As true as that may be, it is not representative as many of the funds should absolutely be avoided as they have no redeeming features; they survive because of investor apathy. So, disregard those funds and choose from the remaining funds that have a decent record.

    You will find that your statistics produce very different outcomes if you apply a bit of common sense to the exercise, rather than just spout lazy articles with dangerously misleading headlines. If only journalists were held accountable for the advice they give! Yes, it is advice they give…

  29. Just a moment! What is wrong with Paul saying what he has? It seems that his argument is robust, and I know we can all pick holes in it, but he has achieved what I imagine was his aim; a debate. I have been an IFA for 26 years now and, with many honourable exceptions, too many colleagues have seen themselves as soothsayers, trying to predict the future. Well, that’s impossible, as we must all admit. We don’t know what assets class, fund, tracker, etc. will do well in the future and we can “hedge our bets” by not even trying to. At least with cash, the money is there, so-to-speak, whatever happens (with the exception of the effects of inflation, of course). Many of my clients simply like to hold a big chunk of cash and that’s absolutely fine with me. They might also hold equities for times of prosperity, bonds for a deflationary environment, and “alternatives” such as property and resources for inflationary times. The cash can handle recessionary times. This “broad basket” of mixed assets (in whatever proportions the client is happy with) is surely the way ahead and helps avoid predictions (which I, for one, am not very good at!).

    Yes, I have appeared on Money Box quite a few times, but no, I have never met Mr Lewis face-to-face.

    Calm down, everyone, today is tough enough!

  30. Paul Lewis please go and take the exams, then offer an opinion or advice. At least you’ll be taking the same risks as the people who give advice for a living. It looks to me as though you wanted to try and prove this particular point and you’ve been wrong so many times before. What was your fee for the story?

  31. Note the comment in para 10 or so that this is the fund that an “unadvised” client would have bought . If Mr Lewis had the courage of his convictions , he should be shouting from the rooftops that advice is better but we know he is more in favour of the public chugging along , ignoring our existence so that he can give his erudite opinions with the protection that the press affords.

  32. There’s lies, damned lies and statistics.

    a. How many people invest on 1st January?
    b. I am sure that I can find a convenient timeline to prove that managed funds beat cash and trackers and so on

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