Recent stock market turmoil not a deterrent for first time investors

Potential investors are more deterred from stock market investment because of a lack of understanding, than fear of the risks involved – despite the recent global stock market turbulence, according to research from the Association of Investment Companies (AIC).

The AIC surveyed 2,110 adults in June 2007 and 2,230 adults again in September 2007, and found only a 3% increase in non-investors avoiding the stock market because it was too risky (15% in September compared to 12% in June). Affordability was unsurprisingly still the most common reason cited for not having any stock market exposure (47%). However, a lack of knowledge about stock market investment was another frequently mentioned drawback – much more so than the prospect of being exposed to the stock market’s ups and downs. Some 32% of potential investors say they don’t understand enough about the stock market to feel confident enough to invest, whilst nearly a quarter (24%) are put off stock market investment as they simply don’t know how to go about it.

In fact, over half (55%) of respondents do not have any stock market exposure at all and many adults consider property to be a safer prospect. Research carried out in June showed that just under half (48%) of respondents thought bricks and mortar was the best place for long term growth. Over a fifth (22%) thought cash was king by preferring building societies and bank accounts as a home for their cash and only a tenth (11%) of respondents considered the stockmarket to be the best place for long term growth. A small minority, 1%, said the best place for their cash was under their mattress!

Gender gap

Interestingly, women are more cautious then men when it comes to stock market exposure. Of those who hadn’t invested in the stock market and were currently considering it, considerably more men (42%) were keen than women (27%). Surprisingly, only 6% of women surveyed in June thought that the stock market was the best place for their cash for long term growth, compared to 16% of men.

Knowledge gap

Just over a third (38%) of respondents surveyed in June had no idea what the minimum lump sum for stock market investing was, and a similar amount (36%) were unaware of the minimum regular saving contribution. A quarter (25%) of those polled thought the minimum lump sum amount is over £1000, way above the £250 that most investment company savings schemes require as a minimum lump sum.

Whilst over half (52%) of potential investors were put off from investing as they thought they couldn’t afford to, interestingly, when they were presented with the idea that they could invest through the stockmarket in a pooled investment fund from £30 a month (or a £250 lump sum) over a third (35%) of respondents said they would be more likely to invest.

Daniel Godfrey, Director General, Association of Investment Companies said: ‘‘It’s interesting that a lack of knowledge scores so much higher than risk aversion as a reason for not investing in the stockmarket, suggesting it’s a lack of financial understanding, not apathy, that keeps many potential investors sitting on their hands.

‘‘These results show the important role that good quality independent financial advice can play, alongside the long-term benefits of financial education, where real progress is now being made. There is also a good deal of information out there for would be investors prepared to do their own homework. Cautious investors could consider regular saving, so that more shares are brought when prices are low and less when prices are high. This helps to smooth the highs and lows of stock market investment and takes away some of the worry of timing the market. From as little as £30 a month or a £250 lump sum, investment companies give investors access to a pooled fund with a professionally managed portfolio.

‘‘For potential investors looking for information on how to get started and details of investment company saving schemes, the AIC’s website is a useful research tool. It has sections on preparing to invest, contains a glossary of terms and information on how to get financial advice. The website also has free downloadable factsheets which investors can use to learn more about the features of investment companies and their uses.’’

For a range of factsheets, performance figures, top holdings, and information of member investment companies, visit: theaic.co.uk.