UK adults have an estimated £880 billion in cash-linked investments, such as cash savings accounts and cash ISAs, according to new research by Schroders.
However, the global asset manager believes that investors remain overly dependent on cash and that investors who are willing to take on more risk should consider other forms of investment to provide additional income especially in the low base rate environment.
The research reveals that around 55 per cent of adults have money deposited in cash savings accounts and in cash ISAs, but that the average rate of return is just 0.77 per cent AER and 1.77 per cent AER respectively.
By contrast, almost a quarter (24 per cent) of UK adults have invested in stocks and shares. Over the past five years for the FTSE All Share Index returns have been 18.7 per cent and for Schroder Income Fund 30.2 per cent.
Schroders says it believes that, as a result of the over-reliance on cash-linked investments, UK adults are potentially missing out on millions of pounds in annual income by not investing in equity income funds.
Despite extensive financial education campaigns and an increased emphasis on savings, a quarter (25 per cent) of UK adults still have no financial investments.
Reinforcing the recommendation that people diversify their investment asset base, in a separate survey of Independent Financial Advisers (IFAs), almost three quarters (72 per cent) questioned said that they believe the stock market currently represents the best investment opportunity, with just 14 per cent disagreeing.
Over a third (36 per cent) of IFAs have seen an increase in clients looking to invest for income.
“Many investors still feel trapped between a rock and a hard place with the Bank of England base rate remaining low and ongoing uncertainty in the global markets,” said Robin Stoakley, Managing Director, Schroders UK Intermediary Business.
“However, it’s clear that there’s an over-reliance on cash linked investments, which are providing substantially lower returns than equity income funds.
“With stock earnings currently set to return strongly over the next two years laying the foundations for long term dividend growth, we believe investment opportunities for income investors look good.”
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