Despite the long-term outperformance of many global markets, Britons remain more cautious about stocks and shares compared to their G7 peers. Why are we so reluctant to invest?
A report by Abrdn reveals that only 8% of UK adults hold equities and mutual funds outside of a pension, the lowest percentage among G7 nations.
This stands in contrast to the 33% of US investors who choose to grow their wealth through investments. So, what sets us apart?
One explanation lies in the UK’s preference for buy-to-let property as a key investment strategy, rather than directing funds into stocks or building an equity-based portfolio.
While US investors hold approximately 26% of their wealth in property, UK savers allocate around 50% of their investments to real estate.
Moreover, the UK has a widespread reluctance to invest. HSBC’s data shows that only 38% of UK adults have invested some of their savings, leaving the majority either unwilling or unable to participate in the market.
Why are UK investors reluctant to invest in stocks?
Although the UK has a robust housing market and a record of steady growth, the S&P 500 surged by 23% in 2024 alone.
One of the primary reasons for the lack of interest in stocks and shares is cultural. While US investors tend to embrace risk-taking, their UK counterparts seem more apprehensive about investing in something as intangible as the stock market.
Following the 2008 financial crisis, many Britons have come to view stocks and shares as akin to gambling, fearing that their investments could lose value as easily as they could grow.
Additionally, the UK stock market has shown weaker performance compared to the US. The FTSE 100 has only risen 180% over the last 30 years, whereas the S&P 500 saw a staggering 1,100% increase in the same period. Although UK investors can invest in S&P 500 stocks, its lower visibility abroad may make it feel like a less accessible or familiar investment option.
The importance of diversification
While the UK’s strong preference for the property market is likely to remain, investors can still gain by diversifying their portfolios to spread exposure across different asset classes.
This approach not only protects your wealth if the UK property market slows down but also allows you to grow your earnings during periods of economic growth.
Investing in stocks and shares can even help you climb the property ladder, especially if you open an investment account designed to build a savings fund for a significant purchase.
So, how can you start investing in stocks and shares? There are numerous strategies to consider for taking your first steps on the investment journey.
Open a stocks and shares ISA
66% of British adults feel uneasy about investing, and while the UK remains hesitant toward investing overall, there has been an increase in the use of ISAs (Individual Savings Accounts).
In the 2022 to 2023 financial year, 3.8 million Stocks and Shares ISAs and 7.9 million Cash ISAs were opened, indicating that many Britons are opting for the tax efficiency of these accounts as a key strategy to grow their wealth.
Data suggests that ISAs are proving beneficial for investors. HMRC reports that nearly 5,000 ISA holders have now become millionaires, despite the accounts being limited to a £20,000 annual tax-free allowance.
The number of ISA millionaires increased from 4,070 in 2023 to 4,850 in 2024, with the highest returns seen among Stocks and Shares ISA holders.
Interestingly, more UK residents still prefer Cash ISAs over Stocks and Shares ISAs, indicating a cautious attitude toward the potential risks of higher-earning investments.
The advantage of ISAs lies in their flexibility. Flexible Stocks and Shares ISAs allow you to withdraw and replace funds temporarily without affecting your tax-free allowance, enabling you to save at a pace that suits your financial needs.
Round-up apps for passive saving
You could also build your exposure to stocks and shares with round-up apps that automatically save and invest your money on your behalf.
These apps can either round up your card purchases to the nearest pound before investing them in an ISA on your behalf, or you could set up automatic monthly payments after payday to passively build your stock market portfolio.
With estimations for your long-term investment returns and a series of smart saving features to help you invest at your preferred level of risk, round-up apps are a great way to add some diversification to your savings and build your wealth.
It’s also easy to modify your deposits if you’re having an expensive month or struggling to keep up with payments elsewhere.
Investing in Equities: The Path to Financial Growth
Although the UK has a strong affinity for real estate, incorporating stocks and shares into your portfolio can significantly enhance its performance and help you achieve long-term financial objectives.
While investing in the stock market may seem intimidating, numerous platforms and strategies are available to help you gain exposure in a manner that aligns with your goals and risk tolerance. With this approach, now is the perfect time to embrace diversification and create a more sustainable portfolio for the future.
