- Nearly half (46%) of adult men now invest compared with 38% in 2020
- 4.3 million people aged 18 to 24 owned an investment in May 2022, with nearly half of them having started investing in the two years prior
- More new young investors (16%) have a moderate to high risk tolerance when it comes to investing, with only 5% of older investors falling into the same category
- Threefold increase in cryptocurrency ownership from 2% of the population in 2020 to 5.8% in May 2022
- People continue to hold substantial amounts in cash, with 79% of those with £10,000 to £20,000 in savings holding most or all of it in cash
- Even the wealthiest have high cash levels: 40% of those with £100,000 to £250,000 in savings hold most or all of it in cash
Laura Suter, head of personal finance at AJ Bell, comments on the latest FCA Financial Lives report:
“Britain has undergone an investing boom, with two million more people investing in 2022 compared to 2020. Young men and cryptocurrency have put the rockets behind this surge in investing, but there’s been an increase across the board as pandemic savings coupled with high inflation have led more people to start investing.”
Men and crypto drive investing boom
“The figures show that almost half of adult men (46%) now invest, up from 38% in 2020. On top of this the biggest increase in investing has been with those aged 25 to 34. As of May 2022, 4.3 million people aged 18 to 34 owned an investment, with almost half of them having started investing in the two years to May 2022. The surge in the number of men investing means the gender investment gap has widened during this time – with men being more than one and a half times more likely to invest than women.
“A big chunk of these new investors are risk-hungry, emotional men who are investing outside of tax wrappers and using social media for their research – meaning there is a potential for a shock coming down the line for some of this new wave of investors. Two-fifths of new investors are investing directly in shares outside of an ISA wrapper, presumably driven by the rise in trading apps that boomed during the pandemic. While many may enjoy direct investing, rather than investing via funds, it’s unlikely to be the ideal starting point for many inexperienced investors. On top of this 16% of new young investors said they had a moderate to high risk tolerance when it comes to investing, compared to 5% of older new investors. Taking higher risk with assets is fine if you’re not investing all your money and you can afford to ride out the highs and lows of volatile, riskier markets, but many signs point to people investing outside of their risk tolerances.
“Some of that increase in owning riskier assets can be traced to the near threefold rise in cryptocurrency ownership, which has gone from 2% of the population up to 5.8%. The figures show that 46% of new investors hold cryptoassets, which the FCA classes as high-risk investments. What’s more, many were motivated to invest in high-risk assets for emotional reasons, such as wanting some excitement or for a novelty factor, while over half of new investors used social media to research investments or find new opportunities.
“It’s not just cryptoassets, there has also been an increase in ownership of other high-risk investments, such as contracts for difference, peer-to-peer lending, mini-bonds and unlisted companies. This rush to high-risk investing has a worrying underbelly to it, with half of those buying these assets having at least one characteristic of financial vulnerability, or no or low appetite for investment risk. Another worrying factoid is that three in five people who have 25% or more of their investible assets in high-risk investments say that a significant investment loss would have a fundamental, negative impact on their lifestyle – highlighting a clear mismatch between their investment holdings and their risk tolerance.
“However, we’ve also seen traditional investing increase, with 1.2 million more people opening a stocks and shares ISA during the two years to May 2022. More than a third of new young investors opened a stocks and shares ISA too, as the surge in investment apps offering ISAs spurred more people to start investing.”
Cash hoarding is hurting savers
“We’re a nation of cash lovers and the FCA figures highlight that lots of people have far more in cash than they need, which in the current high inflation environment means they will be making losses in real terms. The figures show that 79% of those with £10,000 to £20,000 in savings had it mostly or entirely in cash, rather than investing it. While the proportion held in cash drops as people’s savings increase, even a big chunk of the wealthiest savers are sticking to cash. For example, three in five (61%) of those with £50,000 to £100,000 in investible assets hold all or most of it in cash, dropping to two in five of those with £100,000 to £250,000 in savings. Some of these people may have legitimate reasons for sticking to cash, but many will be harming their long-term wealth by not investing.
“There are lots of misconceptions about investing that are putting some people off. For example, a sixth of people think that cash ISAs delivered the same return as stocks and shares ISAs over the past ten years and a third don’t realise that inflation can strip away the spending power of cash. The investing industry has vastly increased the resources and information available for wannabe investors to help first-timers start investing and improve their knowledge, but these figures highlight there is more to do.
“Clearly these figures pre-date the real crunch of the current cost-of-living crisis over the past year, which will have eaten into some people’s savings and emergency funds. However, there will still be lots of people with too much money sitting in cash who could benefit from investing over the long term – and this number will increase as inflation eases and people build up their wealth again.”
