Cash was king, especially in retirement, as most retirees don’t want to take risks with their money, and rightly so. It was nice when savings accounts brought in five or six percent a year, but those days are long gone.
New figures show that the savings products older people rely on for secure, stable income in retirement have been the worst performers over the past decade – by far.
Years of near-zero interest rates and virtual currency printing have boosted riskier assets like stocks and real estate, but destroyed cash and bonds.
Someone who put £1,000 into Isa’s average money ten years ago would have seen their money drop to just £1,142 today.
This is the worst return of 27 different investments ranked in the new AJ Bell Investor Strategy League.
Gold, a precious metal, another safe haven favored by retirees, fared almost as badly. He would have turned £1,000 into a measly £1,280 and comes in 26th place.
Yet another low-risk investment favored by older people, government bonds, fell to 24th place, with the UK gilt sector falling from £1,000 to just £1,380 over the decade.
On the other hand, players generated outsized returns. The Bitcoin cryptocurrency was the best performing asset class of the decade, turning £1,000 into an incredible £11.1 million.
Fast-growing US tech stocks such as Apple and Amazon have also rewarded those willing and able to accept higher levels of risk – typically younger, wealthier investors.
The technology sector was the second best performer, as measured by the fortunes of the L&G Global Technology Index, which turned £1,000 into £8,140.
While the stock market and cryptocurrencies have made the rich even richer, retirees are struggling to get by.
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The Bank of England should hang its head in shame because it is largely responsible.
After the financial crisis, the authorities rushed to bail out the banks, even though they were the architects of their own misfortune.
Savers were left behind when the BoE cut base rates to 0.25% in March 2009 and printed hundreds of billions in virtual money through its quantitative easing (QE) program.
They said it was only a temporary measure, but as AJ Bell’s figures show, the damage lasted 12 years and counting.
Support from big banks came from the cost of savers, who received next to nothing on their deposits, while bond yields also fell.
Big banks don’t need to offer decent savings rates to attract deposits, as they receive financial support from the government.
All that freshly printed QE flew into risky assets such as Bitcoin and tech stocks.
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This pattern could finally be reversed. As inflation rises, interest rates will follow. There are signs that this will finally hit investors’ appetite for higher-risk assets.
Bitcoin has fallen from nearly $70,000 in November to around $40,000 today and tech stocks also look vulnerable.
Higher interest rates could improve cash and bond yields, providing some respite for retirees. The BoE raised rates in December – but only by 0.1% to 0.25%.
However, savings rates will be far from reaching the expected inflation, which could soon exceed 6%.
Today, the best you can get on easy access is 0.70%. Savers continue to face years of rotten returns, and no one is fighting for their corner.
Even less the Bank of England.