• The Labour party says it wants to see more Brits investing in stocks and shares.
  • The number of Brits current investing in the stock market stands at around 23%.
  • In the US, stock market participation is much higher at 61%.
  • According to a study by Opinium for HL, 26% of people said it was because Americans are more comfortable with risk.
  • A quarter of people (25%) said it was due to cultural differences.
  • A fifth of respondents said it is because Brits prefer property.
  • 21% reckoned the incentives are better in the US.
  • Around 1 in 8 (12%) people claimed that it is because Americans are greedier.

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

‘’The Labour party says it wants to make it as easy as possible for people to feel the benefits of saving and investing their money. One of the pledges made on the campaign trail is to encourage the use of stocks and shares ISAs. It’s also been big on the Conservatives agenda too, with retail investor participation seen as crucial to helping boost London’s fortunes. The tricky part is getting people to take a first step on their investing journey and dipping their toe into the market. It is clear that millions of British people are failing to boost their financial resilience by not making a move, while the stock market holds much more allure for Americans. To help more people invest, it’s worth finding out what’s holding them back, and why attitudes appear to be so different compared to across the Atlantic.

Almost two thirds of adults in the US hold shares, compared to 23% in the UK. Given the vertiginous heights the US stock market has reached in recent years, the FOMO effect is likely to have kept up intense interest among American shareholders. The London Stock market has been trading at a 43.5% discount compared to the US and potential investors risk missing out on making gains over the longer term if they stay on the sidelines. Although the FTSE 100 has reached fresh record levels in May, it’s still considered to be undervalued and unloved by many investors. Increasing retail participation could be a game changer for UK stocks, but many people are still hesitant to take the plunge and follow in the footsteps of American investors.

LIS Show – MPU

According to a study by Opinium for HL, 26% of people said it is because Americans were more comfortable with risk, while 21% reckoned the incentives are better in the United States. The might of the tech giants which have propelled US indices higher are likely to have spurred on investment decisions. A quarter of people in the UK questioned about the reasons for the disparity in investing behaviour said it is due to cultural differences.

Certainly, the tradition of being more self-sufficient to pay for medical bills and college education is likely to have persuaded more Americans to start investing earlier. More UK workers also benefit from a workplace pension compared to their peers in the US. Only just over half of US citizens (53%) participated in a retirement plan at work, whereas here in the UK the workplace pension participation rate is 79%. These higher figures in the UK are fuelled by auto-enrolment where workers are automatically enrolled into a workplace pension rather than actively deciding to join it. Recent HL research shows only 36% of people know their pension is invested in the stock market so there is a clear knowledge gap that needs to be addressed.

Rather unfairly, the increased participation in the stock market is seen by around 1 in 8 (12%) of respondents as a sign that Americans are greedier, when many will want to simply be trying to safeguard their future financial health.

Britain’s cultural desire for home ownership is likely to play a big part in these trends. A fifth of respondents said it is because Brits prefer property. While the Englishman’s home is his castle, Americans do appear more at home perusing the wares on financial markets. 16% of respondents reckon at the heart of the difference is that in the US financial education is better.

However, given the relatively high level of pension participation in the UK compared to the US, it seems as though people might not realise that they are investors even though the money they put aside for retirement is put to work in financial markets. Understanding how and where their pension is invested might kick start more curiosity and persuade more people to move their money from savings accounts into investments.

There are simple steps than can be taken, to find the confidence to take the first steps on an investing journey and help build more financial resilience. The good news is that millions of people don’t need to find a penny more to improve their situation– they can just make the most of their existing money and it’ll make a major difference to their overall resilience.

Creating a new investing habit

6.4 million households have no arrears and more than enough savings, but no investments according to the latest HL Savings and Resilience Barometer.** They can move the extra savings they don’t need for 5-10 years or more into stocks and shares ISAs. They can use this account to invest in funds, slices of individual companies, and also individual company shares. The golden rule is not to put all your eggs in one basket and make sure these investments are diversified across a range of sectors and across different parts of the world. This would boost their overall resilience dramatically – especially when it comes to their preparations for later life. The more they earn, the more savings they tend to have, so the bigger the boost they can get from the move.

It also enables their money to work harder. If you put £20,000 into a savings account paying 3% over the next 20 years, it could grow to be worth £36,415. However, if you put it into a stocks and shares ISA and it made 5% a year, after 20 years it could be worth £54,253 – or almost £18,000 more, simply from moving your money.

Why a British ISA isn’t the solution

There has been a lot of talk about the potential for a British ISA to help kick start more investment into the London Stock Exchange. However, around 80% of shares held in HL ISAs is already in UK companies and so the easiest way to promote further investment would be by simply lifting the ISA allowance, without creating a new product and greater complexity. At the same time stamp duty on UK shares is still paid within an ISA but not for overseas shares and levelling his playing field would boost UK equities further. It’s unreasonable and illogical for investors buying UK shares to have to pay stamp duty when overseas share trades are stamp duty-free. Alternatively, providing dividend or capital gains tax benefits for investing in UK stocks outside of ISAs would help.

If the aim is to make investing in UK equities more attractive, there are other measures which could be used. All too often, retail investors are cut out of IPOs and secondary capital raising rounds. To boost retail investment levels, the FCA should look to implement the recommendations in the Austin Review on secondary capital raising swiftly to support retail investors. It’s also essential that the forthcoming FCA Review of the prospectus regime puts improving retail investors’ rights at its heart.”

*Figures from a survey of 2,000 people by Opinium for Hargreaves Lansdown, April 2024.

** The special edition of the HL Savings & Resilience Barometer on efficient use of money has been published and is available on the HL website: Efficient Money Use report | April 2024 | HL

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