More than 70 per cent of people with savings are not confident enough to take the plunge with investments, fresh findings suggest.
Only one in six people with £5,000 or more in savings considered investing in the stock market in the past year, despite nearly 60 per cent having saved more since the start of the pandemic, according to online investing firm Wealthify.
Nearly 40 per cent surveyed said they do not understand how investing works and 22 per cent find the language too confusing, the research shows.
Will you take the plunge? Over 70% of people are not confident enough to take the plunge with investments, fresh findings from Wealthify suggest
Despite interest rates being at rock-bottom and failing to beat inflation, more than 40 per cent said they were happy with the returns they were getting on their cash savings.
Wealthify said: ‘ This could mean millions of people are missing out on opportunities to build their future wealth.’
Lack of confidence about investing was most evident among ‘millennials’ and women, with both groups saying ‘not understanding the process’ led them to feel this way.
‘I’m concerned about losing money if I start investing’
Dawn Shaw’s mother helped shape her attitudes about money
Dawn Shaw, 61, lives in Leicester with her husband, and has three children. She is now retired and her husband is a manufacturing supervisor.
She’s been saving for around five years and they are planning on buying a bungalow.
Mrs Shaw told This is Money: ‘I feel that I don’t know enough about the risks and the benefits of investing and I am concerned that if I invested in something, that I could lose money.
‘If I had more information and was assured that the benefits outweighed the risks then I would probably invest. I am also a highly conscientious person and would only invest in companies that are ethical in all areas of their company.’
Mrs Shaw’s background has also influenced her attitudes about money and saving.
‘My mother, who worked incredibly hard all her life to take care of me, was a big believer that you only buy what you can afford and save to buy things that you want or need that you can’t currently afford.
‘Both myself and my husband also feel that saving money is hugely beneficial as we never know what the future holds. This means that investing is not something that we have been willing to do in the past due to unknown risks and so have chosen instead to use savings account although interest rates are low.’
In terms of what would make Mrs Shaw more willing to try investing, she said: ‘More transparency in the way that stocks and shares work and the risks being explained without all the technical jargon.
‘It would have been massively helpful if I had been taught this at school and feel that it would help children if they had this knowledge as they grew up, so that they understand the value of money and how investing works.’
Despite the increase in accessible financial educational content in recent years, nearly 40 per cent of millennial savers surveyed said they did not know where to go to find out more about investing.
Feelings of exclusivity also remain a problem, with 54 per cent claiming they felt investing was not for people like them. Three in five said they simply wouldn’t know where to start when it came to investing options.
‘I’m risk averse when it comes to money, so investing has never appealed’
John McGill is risk averse when it comes to financial and investing matters
John McGill, 69, lives in Chelmsford, Essex. He has cash savings and started saving over 20 years ago.
When it comes to investing, Mr McGill told This is Money: ‘I would invest if I had the knowledge and the confidence in my ability not to lose my cash. I am risk averse.’
While he hasn’t taken the plunge directly in things like shares, he had a pension which he used up, and has since started another pension to save up for his granddaughter.
Nearly 70 per cent of people surveyed said they had no long-term savings goals, with more men than women claiming this was the case. But, around half of savers with no long-term saving goals are putting money away for a ‘rainy day’.
Andy Russell, chief executive of Wealthify said: ‘The past year has been tough on everyone, both personally and financially for some. But it is important we don’t let that have a lasting effect on our future plans.’
He added: ‘It’s frustrating that the complicated way investing is often still explained, and the perceptions of what an investor “should” look like, are stopping so many savers exploring their options.’
Knowing how to invest and what to invest in and be difficult, and it is of course a real possibility that you may end up losing money that you put in. With this in mind, it may be worth getting financial advice before taking the plunge with any investments.
‘I was brought up with a dislike of shares as my grandmother lost money during the war’
Christine Cain’s grandmother lost a lot of money during World War Two
Christine Cain, 72, lives in south Wales and was a counsellor before she retired.
She told This is Money: ‘Unfortunately when I was divorced several years ago, I had no income at all so I had to rely on the pensions that I had from previous jobs. This meant that I was immediately on a reduced pension pot which has affected me financially for the rest of my life.
‘I do not have the money to risk investing as I realise that investments can go down as well as up.
‘I was brought up with a dislike of shares as my grandmother lost a lot of money during World War Two as she had a great deal of money invested in the local shipyards.
‘This has always been at the back of my mind so I have never invested in any way on the stock market.
‘I very much doubt if anything would encourage me to invest any part of my remaining pension in the stock market as I can not afford to loose it.’
The lower risk funds to help dip a toe into the stock market
One way to invest easily is simply to outsource it all to what is know as a ‘robo-adviser’.
These online investment services tend to ask around 10-15 questions to allocate investors a suitable basket of investments and manage them on investors’ behalf.
They are increasingly popular but still remain niche.
|Fund||2020 performance||Platform fee||Investment cost||Total cost||Cost of investing £10,000|
|Nutmeg – Fixed Allocation 2/5||5.3%||0.45%||0.24%||0.69%||£69|
|Wealthify – Original Tentative||3.88%||0.6%||0.16%||0.76%||£76|
|Moneyfarm – Portfolio 3||3%||0.75%||0.29%||1.04%||£104|
|IG Smart Portfolio – Moderate||7.4%||0.5%||0.21%||0.71%||£71|
|Source: Boring Money|
Next, there are the options for investors who want to decide which funds they want to put their money into.
With low-cost index or tracker funds, rather than being actively managed by a professional manager, these are set up simply to follow a stock market index, such as the FTSE 100 or another defined basket of investments.
Why don’t people feel confident about investing?
There’s a fair few reasons why many people are uncertain about taking the plunge when it comes to investments, according to Wealthify.
Here are the top reasons in their latest findings:
– I’ve always had traditional savings and am happy with their performance: 43%
– I don’t really understand the process of investing: 38%
– The language of investing is too confusing: 22%
– I don’t know anyone who invests: 21%
– I don’t know where to go to find out more about investing: 21%
– I find it difficult to understand financial terms: 19%
– Lack of investments in school/growing up: 17%
As a result, they are usually very cheap to invest in, and will likely prove cheaper than portfolios built by robo-advisers.
Some trackers invest in a mix of shares and bonds around the world, with the option to take a lower risk selection.
The best-known provider is the investment management giant Vanguard.
Alternatively, diversification is one of the key tenets of investing.
It simply means not holding all your eggs in one basket, be that the same geographical region, stock market, asset class, type of company, or anything else.
For a lower-risk portfolio, you could hold around half the money in stock markets, 40 per cent in bonds or other fixed-interest assets and perhaps the remaining 10 per cent in commercial property, for example.
But building that kind of portfolio can take a lot of work and research, and may put off some casual investors simply looking for a spot for their cash that isn’t paying 0.1 per cent interest. You may want to engage an investing management firm to help you along.
Lastly, there are funds and trusts that are designed to avoid investors losing money over a given period and then make a positive return over the medium to long-term.
These can include so-called ‘absolute return funds’, or ‘defensively managed equity funds’, with stock market-listed investment trusts also available which fulfil a similar role.
‘Nothing could persuade me to invest in shares or Bitcoin’
Theo Loyla says he won’t be investing in anything like Bitcoin or commodities
Theo Loyla, 71, lives in Birchington and is retired but still run line dance classes three times a week, Covid-19 restrictions permitting.
Mr Loyla has a cash ISA and savings accounts with a bank and also some premium bonds. He has saved on and off his entire life, usually just for a rainy day.
He told This is Money: ‘When I was working I contributed to a company and two private pensions which I am now happily receiving in addition to my state pension.
‘I have never invested in stocks and shares as I don’t feel comfortable with them. I don’t really think anything would persuade me to invest in shares, Bitcoin or commodities.’
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