Don\u2019t believe everything you read\nin the newspapers \u2013 especially in the financial pages, warns Roddy Kohn\n\n\n\nMost accountants, I suspect, use the phrase \u2018cash is\nking\u2019 to their clients on an almost daily basis. Are they mad? In business, not\nat all. After all, cash flow in business is fundamental and cash for short-term\noperations, purchases and acquisitions, is an absolute. So why is this oft-used\nterm so inappropriate in the current environment and why will it lead to\ndevastating losses for investors saving for their retirement? \n\n\n\nA short answer lies in a recent newspaper article whose\nheadline read: \u2018Where can you safely invest your cash?\u2019 Indeed, this is a\nperfectly reasonable question until you read on to discover this clearly\ninexperienced and naive journalist has possibly been responsible for one of the\ndecade\u2019s most irresponsible pieces of advice.\n\n\n\nThe journalist goes on to\nrecommend that readers consider using a tracker fund. A tracker fund is a bag\nof equities that \u2018track\u2019 an index such as those shares identified by the FTSE\n100. In plain English, this is the UK\u2019s top 100 companies. This index is\neminently sensible for investors who understand what they are doing and who are\nwilling to lose part of their capital if markets fall. We can be confident no\nsuch advice can be considered a suitable place of sanctuary for the average\ndepositor. What\u2019s worse, this idiotic piece of advice targets those who are\ntypically risk averse. And just because interest rates have fallen to 0.1% are\nnow being urged to put their capital at risk. Be careful what you read!\n\n\n\nIn fact, what makes such a\nrecommendation scary is that deposit account investors have a habit of chasing\nincome from deposit accounts while deluding themselves into thinking their\ncapital is safe. Of course simple mathematics puts paid to such delusion. This\ntime last year a \u00a3250,000 deposit account holding would have generated income\nof \u00a32,500. Today that same account generates just \u00a3250, so the shortfall in\nincome of \u00a32,250 has to be drawn from capital. Do this year after year for the\nnext five years and you\u2019ll soon experience the reality of security.\n\n\n\nLight touch regulation\n\n\n\nBanks and building societies are subject to light touch\nregulation. This means these institutions can make wild claims to lure\ninvestors into their poorly paying accounts. We are all familiar with these\nterms: \u2018Safe\u2019, \u2018secure\u2019, \u2018high yield\u2019. I remember the Leeds Building Society\nused the phrase \u2018Liquid Gold\u2019 to trap fearful savers into believing all was\nwell.\n\n\n\nIn fact, there cannot be a single\ndeposit taking institution that doesn\u2019t know their savings accounts represent\nanything but safety in the way depositors\u2019 needs are met.\n\n\n\nThis is particularly true in the\ncurrent pandemic-driven, low-interest-rate environment. Throw in the real-world\nimpact of inflation and these very same accounts are guaranteed to lose savers\ntheir purchasing power.\n\n\n\nLet\u2019s put this into perspective.\nIf you had saved every year in a cash ISA from 2010-2019 you would have lost\n34% OF YOUR CAPITAL IN REAL TERMS. \n\n\n\nPerhaps this is why the\njournalist who urged their readers to invest in a tracker fund. The fact they\nhave simply ignored the volatility a saver would experience in the stock market\nover that period appears irrelevant to sound \u201cfinancial advice\u201d.\n\n\n\nJust for clarity, the Bank of\nEngland measured the difference in volatility between deposit accounts and a\ntracker fund as a factor of eight. And it\u2019s that volatility that often leads\ninvestors to panic and foolishly cash in their tracker fund when markets fall.\n\n\n\nWolf\nin sheep\u2019s clothing\n\n\n\nSo\nwhen investors who should have never been within a mile of the stock market\npanic and lose some of their capital they will have no one to blame. Why?\nBecause inappropriate, generic advice in newspapers has no liability attached\nto it. A newspaper journalist could have worked at the butchers last week and\njust submitted an article as a hobbyist. Yep, hard to believe but truth is\nindeed stranger than fiction and it really does happen. And here\u2019s why. These\ndays newspapers are desperate to cut costs and generate alternative forms of\nrevenue. The result? Fake news is the obvious one, but some newspapers are on\ncommission from the insurer or in so-called partnership arrangements. Stories\nare run with revenue agreements in mind. And even though regulated firms must\ndisclose their fees to consumers newspapers don\u2019t have to. It\u2019s the perfect\nstorm, where risk averse investors get to read articles that push them towards\nrisky investments.\n\n\n\nSo the next time someone says\ncash is king and tells you to buy a tracker, think twice. And get some advice.