The majority of adults in the UK (56%) describe their attitude to investment risk as either low or zero, according to research from Aegon. Conclusions from the study included a “poor understanding of investments and lack of confidence” for this overly cautious stance, with just 6% saying they were risk-takers with their investments.

Minimal losses and modest gains were considered preferable, with cash savings favoured over equities. But, there is a real danger in doing so, especially in the long-term. Aegon Investment Director Nick Dixon explained: “Regardless of the current turbulent political and investment landscape, failing to take measured risk is not prudent.”

Is cash really king?

So, what is the risk in taking no investment risk? Quite simply, the erosion of your money’s buying power over time. Dixon continued: “Over the long term, reckless caution is the biggest risk of all. Our research shows that the majority of UK consumers are exposing their money to stagnation and putting their assets at risk of falling well below the rate of inflation.”

The Bank of England base rate has remained low ever since the financial crisis in 2008. At it’s lowest it was just 0.25%, but it is currently 0.75%. Interest rates are, therefore, equally low. This might be good news for mortgage borrowing, but cash saving rates simply do not exceed the current rate of inflation, which is around 2%.

Embracing volatility

Since 2008, we have seen a ten-year bull market; growth has been relatively steady. However, towards the end of 2018 we experienced increased volatility, widely attributed to political and economic uncertainty. The outcome of Brexit is likely to affect markets too.

Volatility is inevitable but, as history has shown, markets do bounce back. If you are investing for the long-term (i.e. at least five years), towards retirement for example, volatility should be expected and embraced.

Consider this; when markets go down and your portfolio loses value, you still own the same number of investment units. Units are simply cheaper. Investing at this time offers better value for money; more units at a reduced price. During volatility might be the best time to top up your pension or utilise your ISA allowance.

The value of advice

What the research by Aegon clearly demonstrates is a lack of understanding fuelling an over-cautious approach. A financial planner can help make sense of your finances and help secure your financial future. In fact, 14% of surveyed savers said they would be open to taking a greater investment risk with the knowledge that higher returns required more risk.

One of the primary tasks when creating a bespoke financial plan is to determine your attitude towards investment risk. Whether you are cautious, adventurous or somewhere in the middle, an appropriate investment portfolio can then be aligned to your risk tolerance.

Finally, some wise words from the research conclusion by Mr Dixon: “This [research] highlights the great value of good financial advice, which can build savers’ confidence and improve their understanding of risk to inform the right long-term investment decisions.”

If you have any concerns about risk, the performance of your pensions and investments, or would simply like to ask some questions, please get in touch. Our financial planners have a wealth of experience, knowledge and qualifications and are available to help build your financial future.