Folks are back from holiday, the heatwave is over and it’s time for some serious consideration of the investment scene. One question is whether it is best to stay in cash (or cash equivalents such as bonds that are paying a high interest rate) or buy some stock market shares. An article by Ian Cowie published by the AIC makes the case for investments versus cash – see https://theaic.turtl.co/story/compass-september-2023/page/3 . But the AIC does of course have a vested interest in promoting the latter.
With interest on bank deposits rising even instant access saving accounts are paying up to 5% p.a. and National Savings & Investments are now offering a market-leading 6.2% Guaranteed Growth Bond if you can tie up your money for one year.
But inflation is still higher than the interest you’ll get. For example, the official Consumer Prices Index (CPI) increased 6.8% in the year to July – the most recent figure from the Office for National Statistics (ONS). If inflation remained at that level, the real value of money would be halved in just over ten years as Cowie’s article reports.
Should you put your money into high-yielding FTSE-100 big oil and mining companies instead? Some are yielding more than 4% with potential growth on top of that which you can simply add to get the likely long-term yield. In addition, company profits are effectively inflation proofed. If inflation is rampant their sales and profits rise in unison.
Historically, shares have beaten bonds and cash as investments in the long-term. But you can see in the short-term that there are now good places to keep your spare cash until the stock market picks up.
Roger Lawson (Twitter https://twitter.com/RogerWLawson )
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