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ISA Wars: Stocks And Shares Destroy Cash Again

There’s a long-running battle going on for the hearts and minds of ISA investors. The war is between cash ISAs on one side, and stocks and shares ISAs on the other.

This is a war of distinct opposites. Between safe and solid cash, and risky but rewarding stock markets.

Which side are you on?

Cash Bashed

Most people instinctively side with cash. Cash ISAs have been growing at double the rate, attracting £30 billion in the last financial year, against £16 billion into stocks and shares, according to figures from UHY Hacker Young

That’s hardly surprising. Most of us understand cash, we’ve had savings account since we were young. We know stocks and shares are risky, and shy away from them.

Unfortunately, anybody who has backed cash has backed the losing side in the ISA wars.

A big loser.

New figures show that stocks and shares ISAs have won time and time again.

Cash Bashed Again

Stocks and shares ISAs absolutely hammered cash ISAs in the 2013/14 tax year, according to new data from Moneyfacts.co.uk.

The average fund returned a warrior-like return of 9.42%, against a timid 1.69% for the average cash ISA.

And this isn’t just a one-off victory.

In the 2012/13 tax year, the average ISA fund returned double-digit growth of 13.7%. Again, cash trailed badly, with a similar lowly return of less than 2%.

Cash has been blown away.

Stock Markets Storm It

In nine of the 15 tax years since ISAs were introduced in 1999, stocks and shares have delivered positive returns, the figures show.

Overall, the average stocks and shares ISA has delivered blistering growth of 144% since 1999.

That’s despite several shocks along the way, including the dotcom crash in 2000, and the market meltdown in autumn 2008, when the FTSE 100 lost almost half its value.

Stocks and shares ISAs have taken these setbacks in their stride, however, rolling out rewards to loyal investors who withstood the storm.

Some funds have absolutely blitzed cash. 

If you were lucky enough to invest in the best performing stocks and shares ISA in 1999, Marlborough Special Situations, you would have seen growth of a mighty 1603%.

Cash Capitulates

Cash just can’t compete, especially in these days of rock bottom interest rates. Right now, you would be lucky to get 1.5% on your cash ISA.

To be fair, cash was never designed to perform heroics. The problem is that since the financial crisis, it hasn’t even done its basic job of protecting the value of your money.

With inflation topping 5% in recent years, most cash ISAs given you a negative return in real terms.

Now that inflation has fallen to 1.6%, more cash ISAs do now offer a positive return. If you are prepared to lock your money away for five years, you can even get a whopping 3% a year.

That is still only one-third of the amount you earned last year in stocks and shares.

Time To Stock Up

Stocks and shares ISAs aren’t for everybody. If you’re likely to need your money back in the next two or three years, they’re probably too risky, and you should stick to cash.

That’s because you don’t have enough time to overcome another bout of short-term volatility.

But if you are investing over the longer term, you need to pick the right side in this war.

Cash only condemns you to a costly defeat. 

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