Hello – it’s FRIIIIIIIIIIIIIIIIIIIIIIIIIIIDAY!!!! Dizzying excitement this week as HMRC published data on ISAs yesterday, always an exciting day in my calendar.
What have we been up to? The number of people who paid into a stocks and shares ISA from April 2018 – April 2019 fell by nearly half a million, on what we might suppose to be Brexit collywobbles. 2.4 million Brits paid a total of £22 billion into stocks and shares ISAs in the 2018-2019 tax year. But more interesting to me are always the Junior ISA stats, which again would have sent me “off on one” had it not been too hot. 57% of all contributions into Junior ISA accounts were to CASH Junior ISAs. Not shares. .
10% or 20% going to cash might make sense. For those lucky 14 or 15 year olds who might need the money in a few years’ time, for example. But 57%!?! Holy moly.
The risk of cash
Imagine cute little Baby BooBoo, all snuggly with that baby smell after a bath. Schnookums. Might look cute, but do not be fooled people. Baby BooBoo is an investing demon, and deserves hardcore emerging market share portfolios, and not cuddly toys. This small bundle can be the Evel Knievel of the investing world, because, BooBoo has 18 years up his or her sleeve to let markets do their thing. Even when Boo’s in primary school she still has some pretty long timeframes ahead.
Cash might feel like a safety blanket, but with some providers it’s actually a sure fire way to actually lose money, because inflation is like a nasty wolf, gobbling away at the interest you might make every year. Santander currently pay 0.75% for Junior ISAs. Inflation in May was 0.7%. See what I mean?
I’m being a touch dramatic (qui MOI!?). NS&I for example pay 3.25% on cash Junior ISAs which is a pretty good deal. But this bigger question of Cash or Shares takes us back to probably the most important and fundamental thing to get clear in our heads when investing. What are our timeframes and how can we mentally split up our savings into short-term, medium-term and long-term stashes?
Cash. Or shares…?
One of our readers sent me in a question this week – and I’m sharing my answer here as I know lots of you are pondering this sort of thing now. He’s in his 50s. Wondering about the next 10 years pre-retirement. His conundrum is the cash or shares one. Do I take the known rubbishness of cash? Or stay in the markets and keep everything crossed?
“With only a ten year timeframe, am I coming to the end of my investing life and should I now stick with cash if shares and bonds are likely to take a hit in a few years?” You can read my answer here, if this question resonates with you.
Cash may not be King – but it can still be a sort of Baron-ny figure
Cash is a fundamental part of our overall savings and I do not mean to trivialise this. Most financial advisers suggest we have between 3 and 6 months’ income in easily accessible cash as that buffer for a rainy day, and it prevents us from being forced sellers of shares in a slump. With continued market volatility almost guaranteed, this feels more important to review than ever.
With the majority of companies under intense pressure today– and I include the banks in that – it is worth thinking about where you keep your cash. NS&I -mentioned above - feels like a decent option to check out. They are backed by the Treasury so is as safe as it gets. And currently paying 1.15% for Income Bonds Better than a slap in the face with a wet kipper.
V or W?
Finally, the big debate in financial markets is whether we’re headed for a speedy ‘V-shaped’ recovery. Or whether it’s a ‘W’ – with a further slump ahead after some initial signs of recovery. What do you reckon? The FTSE100 today is about 18% off January highs. Where’s it going to be in 3 months’ time? (share this) We’re polling our readers – would love it if you could tell us what you think in this quick survey to canvass sentiment. Will share back next week.
Have a great weekend everyone. Two days with no Zoom...thank Gawd for that. Is it just me or is anyone else so OV-AH video calls!?!?!?
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