DIY investors are ‘cautiously confident’ about 2021

• Two thirds of DIY investors said they were ‘cautiously confident’ about their investment portfolios in 2021, based on a survey of 2,000 AJ Bell Youinvest customers*
• Two in five plan to invest more next year, with many citing low interest rates on cash as the reason
• UK equities are top of their shopping list
• One positive to take from 2020: more than a quarter of those planning to invest more next year are finding it fun to invest

Laith Khalaf, financial analyst, AJ Bell:

“As we get ready to bid farewell to a stinker of a year, investors are looking forward to 2021 with cautious optimism. Clearly it’s early days in the vaccine roll out, but an escape from social restrictions promises to bolster economic performance next year and that’s a supportive backdrop for markets.

“Two in five investors plan to invest more next year, spurred on by low interest rates on cash, and a belief that equity markets look attractively valued. A quarter of these investors pointed to cash they have built up through lockdown, which they intend to feed into the market next year.

“A fifth of investors said they were planning to invest more next year to take advantage of tax reliefs before they are withdrawn, a sign of growing concern that higher rate relief on pensions could finally face the axe, as the Treasury looks for ways to balance the books. However over a quarter of investors said they want to invest more because they find investing fun, which is a positive note to take forward from this year

“In a reversal of recent trends, UK equities are top of the shopping list for DIY investors. The Footsie has been a notable laggard on the international stage in 2020, and investors are consequently gearing up to tilt their portfolios towards the UK. That could mean we see a return of flows into UK equity funds, after a number of years in the wilderness. Brexit is clearly an ongoing issue which clouds the market, but if it reaches a harmonious resolution this year, that could unlock more widespread global investment in the UK.

“Asian and emerging markets also look like they will be popular homes for investment in 2021, and so is the US, despite its very strong recent run. The US now makes up around 60% of the global stock market index, so it’s hard to simply ignore it, even if valuations are looking elevated.

“Unsurprisingly, investors are not planning to allocate much to bonds and cash next year, with yields near record lows, and inflation forecast to rise. Around £150 billion has been squirreled away into cash accounts in 2020, an accidental windfall from the enforced frugality of lockdown. We can expect some of that money to gradually make its way into the markets, as savers realise they’re getting below inflation returns on much of the cash they hold in the bank.”

*Survey conducted online by AJ Bell Youinvest between 5 – 10 December. 2038 responses were received.

AJ Bell DIY Investor Survey Results