ISA savers risk falling short of long-term goals by holding cash in their stocks and shares ISAs, according to Vanguard Asset Management.
An analysis of the portfolios of 500 UK personal investor clients found that a quarter (25%) were holding more than 5% of their stocks and shares ISAs in cash. Of those, one third held at least 50% in cash.
James Norton, head of retirement & investments at Vanguard Europe, said: “Amid the ongoing cash savings debate one point that is being overlooked is that people are using stocks and shares ISAs to hold cash. We know that over the long-term stock market performance outstripped cash returns.”
As an example, Vanguard said that assuming an investment return of 6% a year after fees for 20 years, a £20,000 ISA would grow to just over £64,000. However, if just one quarter of the ISA was held in cash earning 2% interest, this would reduce the return by over 20% to around £53,000.
Norton added: “Cash is a drag on investment returns and savers run the risk of falling short of long-term goals if they keep savings, put in an investment product to grow wealth, in cash.
“The adage ‘time in the markets not market timing’ has held for so long because it’s true. As you approach tax year-end and top up your ISA, make sure you aren’t eroding your returns or diminishing your likelihood of reaching long-term goals by sitting 0n too much cash.”
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