Investments  

Cash-heavy Brits risk inflation hit, LV warns

Cash-heavy Brits risk inflation hit, LV warns
 

Britons are heavily invested in cash, with nearly half preferring to put their money in a bank account than invest in shares, LV has warned.

Some 48 per cent of 4,000 UK adults said they would prefer their money to be in a bank account, according to LV’s latest Wealth and Wellbeing Monitor.

As FTAdviser can reveal exclusively, the research showed Britons are risk averse, with even those who are invested into the stock markets concerned about loss. 

Opinium surveyed 4,000 UK adults on behalf of the life and pensions provider in December 2021.

Of those who are active investors in stocks and shares, 45 per cent said they are more concerned about potential losses than possible gains when faced with a financial decision.

Although 65 per cent of those with investments or pensions said they would remain invested if markets fell, 11 per cent said they would take their money out of the market and 13 per cent said they would immediately contact their financial adviser.

Clive Bolton, managing director, savings and retirement at LV said the data showed just how cautious many savers and investors are when it comes to their finances. 

He warned: “This presents consumers with a dilemma: if they are too cautious they risk missing out on future returns and could see their savings eroded by inflation.

"if they take too much risk they could end up choosing unsuitable investments that lead to significant losses.”

Only one in ten would see the fall as an opportunity to invest more.

But as the LV Wealth & Wellbeing monitor showed, people still largely equate investing with risk-taking and decisions they do not feel comfortable taking, as the table (below) shows.

% Respondents who clicked 'agree' when questioned about risk
 Total (%)Male (%)Female (%)Mass affluent (%)

Hold stocks/ shares (%)

I do not feel comfortable with financial uncertainty5749645545
When I am faced with a financial decision I am generally more concerned about the possible losses than the probable gains5348575345
I would rather put my money in a bank account than invest in shares4842543924
I would be willing to risk a percentage of my capital in order to get a good return on an investment3038224454
I would accept potential losses in order to pursue long-term investment growth2736184154

Source: LV=

Emma-Lou Montgomery, associate director at Fidelity International said it can be tempting to sell investments and hold cash when markets appear unpredictable, but this will only lock in losses.

“Rather than battening down the hatches and switching to cash, you are likely to be better off building resilience into your investment portfolio,” she said. 

Shares in companies that have strong corporate balance sheets and pricing power on their side can prove to be beneficial, she added, saying although it may feel as investing more into the stock market is unwise as markets remain volatile, this is what she would recommend.

“Investing in high-quality companies with solid balance sheets, that have strong pricing power - including those in the UK - can be a good way to counter rising inflation.”

Consulting an adviser

LV's report also stated the best approach would be to consult a qualified financial adviser, as this would help consumers to really understand not only their attitude to risk as well as their capacity for loss.

It could also help them consider their emotional reaction to a range of investment outcomes. 

Taking a DIY approach to managing large investments, such as a pension, carried significant risk, and for those approaching or in retirement there is limited time to recoup any major losses, Bolton added.