Equities have been less risky than cash when it comes to delivering long-term inflation-beating returns
Percentage of time periods where US stocks and cash have beaten inflation 1926-2024
Past performance is not a guide to future performance and may not be repeated. Source: Stocks represented by Ibbotson ® SBBI ® US Large-Cap Stocks, Cash by Ibbotson ® US( 30-day) Treasury Bills. Data to Dec 2024. Morningstar Direct, accessed via CFA institute and Schroders.
Losing money over the long run can never be ruled out entirely and would clearly be very painful if it happened to you. However, it is also a very rare occurrence.
In contrast, while cash may seem safer, the chances of its value being eroded by inflation are much higher.
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We need to change the way we talk about risk. It should be framed in terms of the risk that an individual can or cannot meet their financial goals. That is ultimately what matters. To that end, it has been encouraging to read that the Financial Conduct Authority( FCA) explicitly recognises and backs such change.
People’ s eyes need to be opened to the risk of sitting in cash.
Sources
1
Based on the increase in CPI inflation over this period. The basket of goods and services in CPI is designed to be representative of consumer spending habits.
2
Source: LSEG Datastream and Schroders. Data to 31.12.24 for MSCI World index in GBP terms.
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