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How can savers be encouraged to shift from cash to equities

Journalist: Marc Shoffman, Freelance

ended 19. July 2023

I am writing a piece for MoneyWeek this morning looking at British savers' obsession with cash over investing in the stockmarket.

UK households have less than 4% of their financial assets in shares compared with about 5% in many other European countries and 36% in the USA.

I am after comments from advisers/financial experts, on what can be done to show savers the benefits of investing in equities over cash.

Also keen on comments about why Brits may be reluctant to move from cash to equities..

Many  thanks

 

5 responses from the Newspage community

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Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Cash certainly has a place for short-term needs, but history shows that owning company shares has proven to be a successful way to grow savings above inflation over the longer term. It's key though to understand the differences between investing in a handful of company shares, compared with investing in a broad, diversified portfolio of shares across different countries and industries.
Investing in shares also comes with the inevitable periods where their values will fall; significantly and without warning. Being prepared for this, both in terms of knowing what's "normal" to expect, and also how to structure a financial plan that allows for these periods are the keys to successful investing. Ultimately the reason we encourage our clients to invest is so they can retire earlier, spend more money and do more of what they love and less of what they don't.
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Philip Dragoumis
Director and Owner at Thera Wealth Management
It is undoubtedly much harder to make the argument now that you should be Investing in equities over cash (or even instead of paying off your mortgage) when base rates are 5 percent , Any advisors who blindly repeat the line that cash always makes an after inflation loss are more interested in increasing their assets under management than doing what’s right .

It’s about your time horizon. If you are investing for twenty years or more (whether it’s for your retirement or even for your children) equities still makes sense as GDP and company profits should increase over and above inflation . Current Cash rates at 5 percent may not be sustainable over this term and may come down .

For shorter horizons , cash and bonds could outperform. Equities don’t always work over one decade.
As always , diversification is the way forward . Hedge your bets over a number o.f asset classes. . And as always it’s about your specific situation and risk tolerance
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Gary Bush
Financial Adviser at MortgageShop.com
Coming from a true savings background this is a conversation that is often in my mind when analysing our applicant's financial affairs - we simply don't have enough emphasis on savings beyond the growth in our properties. The UK homeowners are too long-term in our thinking and need to fix this - however, we blame the providers. We have attempted on a number of occasions the idea of an association to drive low touch point simplified low subscription savings plans for the general public but it always falls on deaf ears. If it's not a £100,000 immediate investment the investment houses just aren't interested - we need a rethink and fast, the potential is there, and the general public isn't to blame.
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Stuart Crispe
Founder at Sunny Avenue
Investing might not seem attractive right now because interest rates are high, and you can easily get a safe return by putting your money in a one-year deposit. However, interest rates won't stay high forever, and investing is about thinking long-term.

The problem is that not many people in the UK invest, mainly because they don't know much about it or find it difficult to get started.

There are new ways to make investing easier, like using ready-made investments (offered through high-street banks) and Robo advisers (online). Still, some financial advisers only work with one company, limiting choices. If you go directly to an adviser, you may find the fees too high for your level of experience.

To improve the situation and help more Brits benefit from investing in the stock market, we need to educate about investing, provide more options, reduce fees, and encourage competition among advisers through open banking.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
"As human beings we do not always behave rationally. Despite the fact that history shows us that equities have always performed better than cash in the long run, we do not always act upon and learn from this. We see banks as safe because they are banks but actually the value of our money is going down because inflation is going up. We can explain this to the families we look after and over time most people do get it."