People who are not investing risk ‘badly under saving’ in the future, warns Fidelity

Source: Trustnet

UK savers have been put off investing due to a lack of confidence, a mindset that is too cautious or a lack of familiarity with the options available, according to Ed Monk, associate director at Fidelity International.

It means many more people “could invest than they currently do”, leaving themselves at risk of “badly under saving”.

A recent Fidelity survey found 41% of people in the UK identified as savers rather than investors, despite some 74% of respondents contributing to a workplace pension, meaning they are likely to be invested.

Of those with a pension, almost 17% felt investing was something only professionals did, while 15% thought it was reserved for the extremely wealthy. This is despite investing themselves.

“It’s striking that nearly one in five people believe investing is only for professionals, and a significant proportion still associate it with wealth or complexity. That perception gap risks discouraging people from taking even small, practical steps that could benefit their financial future,” Monk said.

While investing is not right for everyone, “in general, it is appropriate for more people than they think,” he noted.

Part of the issue is cultural. In the US, for example, people are encouraged to invest. With lower taxes (meaning more money in their pocket) but also larger bills, people tend to invest for their children’s college funds or retirement.

In the UK, however, “caution, familiarity and sometimes lack of confidence”, make people more hesitant to put their money to work in the stock market, said Monk.

A more recent phenomenon is the rise of social media, which has led some to believe that investing involves “chasing some sort of crazy high market-beating return”, as often the ‘opportunities’ presented online are “full of people promising quick returns and surefire success”.

As a result, people’s expectations of “what they’re likely to get and likely to lose in investing are often out of whack”.

However, the historical average for long-term market returns are much more conservative at around 7% per year. Although markets go up and down, it shows the volatility and huge swings that can be experienced when trading based on social media recommendations are a lot less prevalent in the wider market.

“We like the phrase get rich slowly because it says two things. It gives you a better idea of how long of a time horizon you need, but it also tells you that you can get rich,” Monk explained.

While some believe they need to be taking on a lot of risk to make money, the opposite is also true: some are “way too pessimistic about investing”.

Many people who do not invest are terrified of losing all their money. While this can happen, he argued that people overestimate the risk of loss – particularly if investing for long periods of time.

“If you had lived through the absolute worst stock market event in the past 25-30 years, you might have lost around 40% of your money in the dot-com boom as an absolute worst-case scenario,” said Monk.

This was a generationally bad point for markets, however, and even then investors were not wiped out overnight and over time would actually have made more money if they had held tight and waited.

Source: Fidelity International

As such, investors who can put money away consistently for the next 20-30 years can almost “tune out” the noise of the market and even take more risks early on.

Monk said: “Quite honestly, if you’ve got a long-time horizon, you don’t have to worry all that much about what the markets are doing. I don’t want to say there’s no risk in investing, because there is. But I think you need to put the risk in its proper perspective.”