In the back
AltRetire’s John Blowers says
pension savers in the UK could
learn a lot from the way their
counterparts in the US look
at risk
Risky
business
I
n the good ol’ United
States of America, there
is a culture of investing.
Where people use their
401(k) or Roth IRA to save
for retirement, they play
the stock markets and are
generally more comfortable
with taking risk.
In the UK, it’s a different cultural
story. We have grown up with savings
accounts, building societies and even
cash under the mattress. Us Brits just
don’t like risk and never really have
done, which is fine if your savings
accounts are generating interest of 6
per cent or more, but those days are
now long gone.
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However, we have – as a nation –
shown signs that we are adapting.
In September 2017 (almost 10 years
since interest rates fell to historic
lows), stocks & shares ISAs overtook
cash ISAs in the sales charts.
This has taken longer than it should
have. Investing in any cash-based
product is likely to result in a fall in
real value as inflation has been higher
than interest rates for some time and
the gap is widening.
and investors were right to be worried
when the index fell almost 11 per cent
between January and March this year.
And herein lies the first big issue we
as a nation have as investors rather
than savers. We are psychologically
vulnerable to uncertainty. We don’t
seem to mind if our cash is gently
eroded by the forces of inflation,
because it is stealthy and the amount
of money you have looks safe – at
least on face value.
But a stock market correction
Psychologically vulnerable
creates real havoc, causing our
So why are we culturally scared of
portfolio values to dip alarmingly. It
investing in the stock market and
feels like you have lost money and
what can be done to allay those fears? you wonder if your investments will
Let’s start with some facts. The
ever climb back to their value of just a
FTSE 100 index – a decent measure of few days ago. Who knows? This might
stock market performance – has risen be the moment when stock markets
by 4.45 per cent over the last year to 1 lose value permanently.
May 2018. It’s been a challenging year
This uncertainty plays on our
minds and leads us to seek methods
of reducing risk. By doing that,
We have grown up with
however, we are also – by default –
savings accounts, building seeking methods of reducing our
potential returns.
societies and even cash
There is now a thriving industry in
under the mattress
behavioural economics. Investment
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