Why invest at all when fixed-rate savings account are so high? [6-month "update"]

[cupofdaisies]

@resjudicata I bought a few hundred quid of AMD at like $30/share a few years ago. Obviously wish I bought more but it's provided a decent return.

Of course investing in individual stocks is annoying because of the whole "when to sell" question.

 

[adalia89]

@resjudicata Been thinking a lot lately about when I almost took out a loan to buy a large amount of NVIDIA shares in 2018.

 

[betty129]

@resjudicata The answer also is to avoid FTSE100 indexes like the plague as past lack of performance, consistently predicts present lack of performance.

 

[inchrist1]

@betty129 People still invest in the ftse 100? Lol. I dumped that sht years ago. Was dragging my returns. Glad I did. Nowadays I am like 80% USA and 20% rest of the world.

 

[ariel]

@resjudicata It’s not risk free. There is an inflation risk!

 

[ahpavlik]

@resjudicata I'm up 440% on my original Nvidia investment, unfortunately I only put £100 in.

 

[blesstloms]

@david_thesalmst 6 months is a pointless time period to look at.

But as a general rule any money you don't need and want to invest should go into an all world or S&P tracker.

Pretty much any long term (5yr plus period) it will outperform cash. Could well have incredibly bad timing with a lump sum, but any regular investment should outperform.

 

[theropod]

@blesstloms 6 months is pointless. But it’s allowed OP to take a very small snapshot and make a big fat ass statement about how we should all invest our money.

To be honest, this sort of post is pretty dangerous for those who may take it out of context.

 

[david_thesalmst]

@theropod I mean...I think I pretty clearly make it obvious that the point I'm making is about not getting distracted by seeing high fixed-interest savings account at a time of high-inflation?

There's obviously dozens of reasons why fixed-rate savings are better than the market for lots of scenarios. But I literally say in the post that going for those fixed-rate savings just because it's a big number is a bad idea.

 

[charu]

@david_thesalmst But if the market had underperformed those accounts everyone would be saying you can't judge on such a short term window. It's inappropriate either way.

 

[david_thesalmst]

@charu Absolutely - 6 months is way too short.

I'm just using a real-life example from this subreddit to counteract the people (as I link to in the post) making timing-the-market arguments.

5, 10, 15, 25 years are much fairer judgements of course, but also very hard for people to conceptualise and buy into.

 

[theropod]

@david_thesalmst And I’m saying the opposite. Just because the stock market has had a really good six months doesn’t mean you shouldn’t be using cash savings accounts. Imagine how you’d feel if someone were to pull out their life savings and invest it in stocks off the back of this post, and the stock market to tank 20% next week?

 

[julie121]

@theropod

Imagine how you’d feel if someone were to pull out their life savings and invest it in stocks off the back of this post, and the stock market to tank 20% next week?

Stop using individual points in time as arguments for long term investment strategies. This is just timing the market in a different form. Stocks over long time horizons outperform cash overwhelmingly. Even arguments around volatility are questionable as interest rates are highly correlated with stock returns over long periods and stocks tend to rebound quite quickly after large corrections historically.

 

[theropod]

@julie121 And you’re right. And OP has used a convenient point in time to get their message across. I’m countering it with the opposite likelihood.

You’re absolutely right that over longer timescales stocks beat cash. That’s not in debate.

What I’m concerned about is someone reads “looks how stocks have done 5x better than the best cash!” And plop in all their savings. See a dip and draw the lot back out again - because that’s what inexperienced people do.

 

[david_thesalmst]

@theropod Nowhere did I say don't use cash savings account; they're perfect for the short- and even medium-term holdings. Again I make that point in my post - "obviously there might be a crash in the next 6 months".

I'm responding quite specifically to the posts who were saying "With interest rates so high, why bother investing in the markets", being blinded by seeing 5-7% guaranteed returns. These are ideal for if you need the money in the next year or so, but if you're actually looking to develop "life savings", they should get outpaced by the market.

In your example you're just making "timing the market" arguments; if somebody invested their life-savings and the market crashed 20% next week, I'd strongly expect it to recover and beat savings accounts returns within the next 5, 10, 15, 20, etc. years.

 

[rbarkster1418]

@david_thesalmst You can invest in markets at any time long term. High rate savings accounts are not an anytime thing. Your comparisons were for performance on such a short time period. IMO comparing 12 month savings accounts to long term investments doesn’t make sense.

 

[betty129]

@theropod It reminds me of this other bloke who posted here a week ago, about how he can’t decide between using his 100k savings to fund a deposit for a house purchase or to “build wealth using index funds” while he continued to rent.

 

[julie121]

@betty129 What about that? Housing isn't cheap and if his rent isn't particularly high then his decision to invest that money in index funds could actually be a superior option.

 

[betty129]

@julie121 He doesn’t have the capital to build wealth with something that averages single digit returns over a period of years, while his rent was the same price as a mortgage.

 

[julie121]

@betty129 He doesn't have the capital? With 100k? What?

something that averages single digit returns over a period of years

Stocks have historically outperformed property and don't come with any of the additional maintenance costs. Property too 'averages single digit returns over a period of years'.