Only 4 per cent made the most of lockdown falls in markets by investing more
As the nation emerges from a second lockdown, savers are failing to take advantage of falling markets despite the returns on offer, new research from wealth manager, Quilter, has found.
The data revealed that just 4 per cent of people invested more money as stock markets fell in February and March. This is despite the fact that a quarter of people said they had more money to invest than they would do in a normal year following the first lockdown.
Quilter has found that those that do invest spare cash each month stand to benefit from significant gains. It found that those who put away just an extra GBP100 per month over a five year period would see a GBP10,000 investment in the average global equity fund be worth GBP7,500 more than if they had just left the investments alone, despite the market crashes experienced back on February and March.
This is due to a process called pound cost averaging, where the amount you pay for an investment will average out over time due to regular contributions and will smooth the investment journey for you.
Of those who found they did have more money than usual, more than a third (36 per cent) would put it in a cash savings account while the same proportion (36 per cent) would leave it sitting in their bank.
Data from the Bank of England shows that long-term savings account interest rates have collapsed from already low rates as it looks to stimulate the economy. Three year fixed rate bonds have fallen from an average of over 2 per cent five years ago, to just 0.74 per cent now.
As a result, Quilter is calling on savers to invest any spare cash regularly and for the long-term in order to take advantage of pound cost averaging and beat the paltry interest rates offered by banks.
David Gibb, chartered financial planner at Quilter, says: “The collapse in savings rates has been well documented, but it has come at a time when the amount of household savings has skyrocketed as a result of the Covid-19 crisis. But as the data has shown, savers wanting a suitable rate of return need to be looking at regularly investing it in the stock market.
“The returns over the last five years will have comfortably beaten anything a savings account could have achieved and that is with the Covid-19 crisis thrown in for good measure.
“For those already with investments it is crucial they continue to add any spare cash to them to allow it to grow over the long-term while also smoothing the volatility that naturally comes with investing.
“As the country has emerged from a second lockdown, many people will find themselves with spare cash again as they aren’t going out as much or commuting to and from the office. With the UK facing somewhat of a cash crisis by holding too much of it, it is never too late to invest it over the long-term.”