Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
During the Great Depression, people started hiding money in some unlikely places. Mattresses, piano legs and chimneys were all used to harbour bank notes, as trust in the financial system plummeted. Almost a century later, conditions are thankfully much more stable - but people still love the idea of cash.
In the UK, cash ISAs - which allow savers to earn interest tax free - are significantly more popular than stocks and shares ISAs1, and have been for many years. Even in the world of investing, people crave cash-like returns: the Fidelity Cash Fund, which holds very low-risk, money market instruments, was our best-selling fund last month. With interest rates well higher than we are used to, it is easy to see the appeal.
The government isn’t happy about it though. Chancellor Rachel Reeves wants to funnel more capital into the UK stock market, in the hope of boosting the economy and driving better returns for individuals.
Nothing has been confirmed yet, but one way she could do this is by changing the ISA regime. Currently, individuals can divide their annual £20,000 ISA allowance any way they wish.
Cash and investments both play important - and different - roles - in your finances. Cash will not lose value in nominal terms (although it can lose value to inflation - more on that below) whereas investments can fall in value. The compensation for taking that risk is the potential that investments can produce a higher return - with the chance, of course, that they don’t.
It makes sense to hold a sum of cash that you can dip into in an emergency - an amount worth three to six months of income is recommended. This can actually help your investing because it means you won’t have to sell investments if you need money at short notice.
How should you decide where to allocate your money? Here’s three charts to help you decide.
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Equities are more volatile than cash. They bounce around depending on how companies are performing, what is happening in the political arena, and how the economy is faring. Share price movements can be sharp and unexpected, as seen in 2008 and 2022. Over the longer term, however, the outperformance of stocks has been striking.
If you had invested £1,000 in a world tracker fund on New Year’s Eve 1999 you would now be sitting on the best part of £5,000. If you had opted for cash instead, you would only have grown your pot to £1,700. Companies have been dealt a few curve balls in that period - not least a dotcom crash, a global financial crisis and a pandemic - but shares have still come out on top. Please remember past performance is not a reliable indicator of future returns.
That doesn’t mean the process has been stress free. Returns have varied significantly year-by-year and recovery hasn’t always been quick. It took the US equity market four years to bounce back from the global financial crisis and over seven years to recover from the dotcom bust.2 If you have a short time horizon, therefore, the smoother, shallower trajectory of cash returns may be more attractive.
Cash is often viewed as a safe haven. After all, the face value - or ‘nominal’ value - of your cash savings will never drop unless you start spending. However, what you can buy with those saving could fall substantially. This is due to inflation.
The chart above shows that, historically, US equities have been better than cash at beating inflation. This applies to a range of different holding periods, including very short ones, but shares are particularly attractive if you have a long investment horizon. According to Schroders analysis,3 there have been no 20-year periods in the past century when stocks lost money in inflation-adjusted terms.
The corrosive effect of inflation is a key consideration when deciding where to put your money. The backdrop is fairly bright for savers at the moment: in October 2023, the base rate overtook inflation, reversing a 15-year trend. However, conditions could change if the Bank of England starts cutting interest rates in earnest.
History suggests that the longer you are in the stock market, the less likely you are to suffer a loss. This chart displays the best and worst annualised returns you would have experienced had you held shares in the S&P 500 for one year, five years, 10 years or 20 years.
As you can see, the range of possibilities is very wide if you only keep your portfolio for 12 months. As your investment horizon lengthens, however, the worst-case scenario starts to rapidly improve and has turned positive by the 20-year mark.
This example is based on the S&P 500. Past performance is not a reliable indicator of future returns.
- Open a Fidelity Stocks and Shares ISA
- Open a Fidelity Self-Invested Personal Pension (SIPP)
- Read: Principles for good investing
|
(%) As at 31 May |
2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 | 2024-2025 |
|---|---|---|---|---|---|
| Global Shares (MSCI World) | 41.2 | -4.4 | 2.6 | 25.5 | 14.2 |
| Cash proxy (US Treasury Bills) | 0.1 | 0.1 | 3.1 | 5.5 | 4.8 |
| S&P 500 | 0.1 | -0.3 | 2.9 | 28.2 | 13.5 |
Past performance is not a reliable indicator of future returns
Source: Refinitiv, total returns in local currency from 31.5.20 to 31.5.25. Excludes initial charge.
Source:
1 Gov.uk 4 December 2024
2 UBS Global Investment Returns Yearbook 2025
3 Schroders, 15 May 2025
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in a SIPP or ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a SIPP will not normally be possible until you reach age 55 (57 from 2028). Overseas investments will be affected by movements in currency exchange rates. An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. Fidelity’s money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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