Investors increase cash Isa exposure in 2016
Despite poor returns on cash deposits topping the list of investor worries, more than a quarter of investors are favouring cash individual savings accounts (Isas) this year.
Research from the Association of Investment Companies using Interactive Investor found that 26% of investors favour cash Isas in 2016 compared to 10% a year ago.
Three out of ten investors are opting for only stocks and shares Isas, slightly down on a year ago (37%).
Investors were not confident about investing in the stock market during the turbulent conditions at the beginning of the year according to the study conducted with private investors between 13 January and 12 February 2016.
What’s the worry?
When asked what was the biggest threat to their finances, the three worries, in equal measure, were poor returns on cash deposits, China’s market triggering more stock market volatility and a stock market crash (all 18%).
The number of investors increasing their stock market investments halved at the beginning of this year to a quarter (25%), down from 49% a year ago. However, investors were not panicking – only 8% said they were actively decreasing their stock market exposure, slightly less than the same period last year (9%).
Of the quarter of investors who said they were actively increasing their investments, over half (54%) said they were taking advantage of the stock market volatility, whilst the second most popular reason was the poor rates of interest available on savings accounts (16%).
UK still top spot
The UK remains the most favoured region to invest, with just over a quarter favouring the UK. Europe was the second most popular region (13%).
Smaller Companies take the top spot as the most favoured sector, with over a fifth (22%) of investors favouring this sector. Smaller companies were in joint second place last year alongside blue chips, which interestingly, have completely fallen out of favour this year with investors. Last year, blue chips were favoured by 14% of investors and this has now shrunk to 7%. The second most favoured sector this year was pharmaceuticals/healthcare (12%).
Annabel Brodie-Smith, communications director, Association of Investment Companies (AIC), says: “It’s encouraging to see there is no panic selling. Given the volatile start to the year, it’s worth remembering the benefits of regular saving, which can smooth out some of those stomach churning highs and lows in the price of shares.
Known as pound cost averaging, it means investors buy fewer shares when markets are high, and more when markets are low, removing some of the risk of market timing.”
The 2016 survey was conducted amongst users of Interactive Investor products including, Moneywise.co.uk and Money Observer.com between 13 January - 12 February 2016 with a sample size of 838 investors. The 2015 research was conducted on behalf of the AIC by Morningstar.co.uk amongst 957 of its users from 12 January – 12 February 2015.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.