Shares 4 : Cash 4
The price of shares rose for the fifth year in a row in 2007. But that does not mean share based investments are the best place for your money. Cash has beaten shares for four out of the last eight years.
In 2007 share prices rose by 3.8% and house prices by 4.8% (UK average, Nationwide index). But cash in a good ISA or instant access account could have brought you 6% or more over the year. Cash also beat shares in 2000, 2001, and 2002 as well when share prices did not so much fall as plummet. Cash of course produced a positive return in each of those years as it always does with no charges and no risk.
So what will happen in 2008? Niels Bohr, the Nobel prize winning quantum physics pioneer, said “It is very difficult to make an accurate prediction, especially about the future.” And the wide range of year end financial predictions show that even the experts do not agree. But after rising for five years in a row another increase in share prices in 2008 would be a very rare event indeed. It has only happened twice in the last 108 years – the six year run 1941-1946 and the record thirteen year rise from 1977 to 1989.
The last five years has seen the FTSE 100 index of shares in our biggest hundred companies rise by 63.9% from the start of 2003 – compound growth of 10.4% a year. Indeed if you had timed your investment even better and invested when shares hit bottom on 12 March 2003 you would have just about doubled your money with a 96.4% rise by the last day of 2007. But timing is everything. If you had taken a more long term bet on shares on 15 April 1999 your investment would have ended 2007 exactly where you started. Nearly eight and three quarter years and no growth. At least with cash you always get something back.
With the banks desperate to get hold of our money because they no longer trust each other, returns on cash seems likely to give shares a tough run for our money in 2008. And if the last eight years are any guide, it’s an even bet cash will do better. Something to remember when you pays your money and takes your choice.
Happy New Year!
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