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After almost two years of ‘unprecedented times’ it appears that consumers are seeking calmness and predictability more than ever. Our latest research* provided some key insights into UK consumers’ attitudes to investment risk – almost 60% stated they ‘do not feel comfortable with financial uncertainty’.
Every quarter we survey 4000 nationally representative UK adults, tracking changes to their income and outgoings and exploring a variety of wealth and wellbeing subjects, such as their plans for retirement and their mental health.
In the latest edition we asked UK adults about their attitudes to investment risk. We discovered that 53% of UK adults were more concerned about possible losses than probable gains, and it remained high among those who already hold investments (45%).
48% stated they would be more inclined to put money into a bank account than invest in shares, and with current levels of rising inflation and low interest rates, what many consumers don’t realise is they are devaluing their capital through this decision alone. 57% stated they do not feel comfortable with financial uncertainty, and women were almost 10% more likely to feel this way than men (57% vs. 48% of men).
These people are faced with a big conundrum - their savings and income are being devalued by the double whammy of low interest rates and rising inflation, and still they invest by the millions into savings accounts as Bank of England data confirms.
The research paints a clear picture – UK consumers, including those already investing, are looking for more certainty when it comes to their finances.
What can advisers do?
Help consumers better understand the risk that they take on by investing. For people, who only have psychological capacity for a small loss, look for the ‘holy grail’. A solution that invests in real assets without exposing the investor to unnecessary investment risk and market volatility.
Protect the investor from the ups and downs of the stock market - using exposure to an investment solution that exhibits defensive qualities that helps to absorb the impact of market shocks without forgoing future performance potential. The LV= Smoothed Managed Funds, for example, have FE Risk Scores that rival cash.
This doesn’t just mean clients with a low risk tolerance, for example it could be the entrepreneur or business owner who has taken risks their whole business life, made their money, and now have no need or desire to expose their accumulated wealth to any further undue risk. Many advisers are looking at whether their clients have the necessary ‘composure’ for their current risk journey.
But, of course, the common thread for all these clients is that it is not just about their outcomes or objectives; the risk journey they experience in achieving their outcomes or objectives is of equal or in many cases of more importance to them.
Client capital at risk. Please remember that past performance doesn’t reflect what will happen in the future. The value of your investment can go down as well as up.
In exceptional market conditions (when the underlying price is 80% or less of the averaged or ‘smoothed’ price) the fund will typically be valued on the underlying price. Or, using our discretion, may be valued on the daily gradual averaged price with a shorter smoothing duration. We reserve the right to move to the underlying or gradual averaged prices at other times.
*Source: LV= Wealth and Wellbeing Monitor, survey conducted by Opinium in December 2021.