Missed Opportunity: How Investors Counted the Cost of being Overcautious in 2019

Being cautious is usually sensible, but being overcautious can come at a cost. This was evident in 2019 as many investors remained on the side-lines – a period when they could have benefited healthily from putting their money to work.

We conducted a survey in association with YouGov to gauge how the political climate and uncertainty affected sentiment. Our findings were unequivocal: Brexit massively influenced investor inertia with wider uncertainty also playing a big part – to an investor’s cost.

  • Brexit was the greatest factor dissuading prospective investors from investing, with 41% citing Brexit as a deterrent, followed by wider UK political uncertainty at 38%
  • For every £50,000 invested UK investors missed out on returns of up to £9,100 in 2019 alone
  • The “Cost of caution” is set to continue in 2020 due to ongoing Brexit concerns and growing fears of a UK recession

Top factors that have deterred prospective investors from investing

Brexit 41%
The uncertainty of UK politics beyond Brexit 38%
The prospect of the UK having a Labour government and potential implications to the UK economy 33%
Concerns about the outlook for the UK economy in general 33%
Lack of confidence that I would get the return promised from investors 31%

Despite delaying their investment plans in 2019, almost a third of these investors (30%) believed that any investment made would have increased in value, versus 24% expecting it to decrease. These findings indicate that many reticent investors recognise the potential returns they may miss out on as a result of their cautious approach.

This “Cost of caution” is clear: our analysis of industry performance shows that, for a £50,000 portfolio, prospective investors would have missed out on anything from £4,400 to £9,100 in 2019 alone – depending on their preferred investment style.

The cost of caution: how much investors could have missed out on in 2019

Investment style Industry performance Returns based on £50k investment Cost of caution
Cautious Allocation (up to 40% Equities) 8.8% £54,400 £4,400
Moderate Allocation (up to 60% Equities) 12.4% £56,200 £6,200
Adventurous Allocation (Up to 75% Equities) 18.2% £59,100 £9,100

Source: Morningstar, one year returns in GBP to 31st December 2019, net of fees.

“Investors should recognise that there will always be risks to investing,” says Iain Barnes, Netwealth’s Head of Portfolio Management. “Ensuring you have a balanced and well-diversified portfolio will minimise exposure to individual events and enable you to benefit from the returns that long-term investment can offer.”

Cost of caution set to continue in 2020

Despite investors missing out in 2019, they are still wary about changing their behaviour in 2020. Almost half of respondents with assets totalling £50,000 and above (47%) reported that they’re still unlikely to invest in the next 12 months. Brexit remains a key concern for 36% of these respondents, alongside concerns about a wider recession within the UK (32%).

The investment industry needs to serve clients better too. Almost one in five (18%) of respondents that are unlikely to invest in 2020 have been deterred by a lack of transparency within the investment industry. The fallout from the Neil Woodford scandal (deterring 10% of investors) also highlights the impact of the reputational challenges faced by the sector in 2019.

Key factors deterring investors in 2020

Brexit 36%
The uncertainty of UK politics beyond Brexit 35%
Concerns about a recession in the UK economy 32%
Lack of transparency within the investment industry 18%
Woodford/Patient Capital scandal 10%

What can (and should) investors do?

We set up Netwealth to make a difference to investors who may understandably feel short-changed by the industry and traditional wealth managers. We encourage clients to be aware of the dangers of being uninvested and to be alert to the damage that being overly cautious can do to their savings.

If you are concerned about investing, our tools and the choice of seven different risk level portfolios help you take the appropriate level of risk to match up with your individual needs. Don’t allow an overcautious approach to become perhaps the biggest risk to achieving your financial goals.

Please remember that when investing your capital is at risk.

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