CASE STUDY: THE RANDOM FAMILY

How have cash, bonds and shares compared in the past?

To illustrate the different historic *returns* from these investments, this example shows the money two parents would have made for their three children – Joe, Tina and Diane – had the CTF been up and running since 1981. Assuming the Random parents invested each child’s £250 lump sum on the day of their birth and each child received the £250 government top-up on their seventh birthday, the table below shows how much each child would have received on their 18th birthday if their £500 had been invested 1) in *cash*, 2) in *bonds*, 3) in *shares* or 4) in a lifestyle plan.

It is interesting to note the different amounts that Joe and Tina Random would have received on their 18^th birthdays from investing purely in shares. Joe received more than Tina because he was born at a time when share prices were relatively low, and turned 18 in the late-nineties when share prices were relatively high. Tina, however, turned 18 in 2002 when share prices had fallen considerably. She would have received a better return from investing in the lifestyle option, which would have protected her investment from the fall in share prices in 2002. Nevertheless, both Tina and Joe received a better return from investing in shares than in either a savings account or UK Government Bonds.

In contrast Diane Random cashed in her CTF in 2009 during the credit crisis when the value of shares fell dramatically. Diane would have therefore, received the best return from the lifestyle plan, which would have protected her investment from the full impact of the decline in share prices. Diane would also have received a higher return from a CTF invested in bonds rather than shares.  This is because the value of bonds has increased during the credit crisis, whereas the value of shares has decreased. Despite this, a CTF invested in shares still yields a better return than a CTF invested in an ordinary savings account..

Please note that IMA’s factsheet is for information purposes only. It does not constitute advice. It simply aims to help you better understand the *risks* and rewards of *Investment Funds* and why they can help reduce the risk of loss through “*diversification*” (the spreading of your money across a range of investments). Money deposited in a bank or building society is relatively secure, whereas an investment involves stock market risk. This means that the value of your investment can go down as well as up. If you require any advice on investments, you should contact a *financial adviser*.