Tax rises are biggest financial worry for investors
With a general election around the corner, research from the Association of Investment Companies (AIC) suggests tax is very much on the agenda for investors. When asked what they consider to be the biggest threat to their finances, 45% of active investors and 21% of the general public said changes in the tax rates were the biggest threat.
With investors concerned about tax rises, it's not surprising that the number of investors planning to use an ISA this year has increased on last year with 72% of active investors and 38% of the general public planning to take out an ISA this year in comparison to 66% of active investors and 31% of the general public last year.
Confidence amongst active investors has fallen slightly over the past 12 months with 40% of active investors saying they will increase their stock market investments this year, down from 50% in March 2009. This is, however, an increase from October 2008 when levels fell to 33%. Nearly half (46%) are planning on making no changes to their investments and only 12% plan to decrease their investments. Of those planning to increase their investments this year, 32% cited low interest payments on their bank accounts as the main reason and 23% said that they are feeling more optimistic about markets in general.
Threat to finances
With a general election around the corner, tax is the overriding concern for investors. When asked what they consider to be the biggest threat to their finances, 45% of active investors and 21% of the general public said changes in tax rates were the biggest threat. 22% of active investors said the increase in income tax to 50% was the biggest threat and a further 22% are expecting further tax increases after the elections to threaten their finances. Other concerns for active investors were the recession (13%), a possible stock market crash (9%), inflation (9%) and the possibility of Britain's AAA credit rating being downgraded (8%).
For the general public, tax increases after the election was their biggest worry (16%), inflation (15%) was cited as the next biggest threat followed by losing their job (14%), the recession (12%) and rising interest rates (9%).
Still saving for a rainy day
As the UK creeps out of recession investors are still cutting back on their spending and saving more money but the number doing so has reduced since last March. 29% of active investors and 27% of the general public say they are saving more and spending less whereas last March 40% of active investors and 34% of the general public were spending less and saving more. Interestingly 62% of active investors and 44% of the general public say they have not changed their spending habits at all.
ISAs
The number of investors planning to use their ISA allowance has increased this year with 72% of active investors and 38% of the general public planning to take out an ISA this year in comparison to 66% of active investors and 31% of the general public last year. Of the active investors planning to take out an ISA, 27% were planning to use the shares element only, 25% the cash and shares element and 20% cash only. In contrast for the general public cash remains king with 31% planning to use a cash ISA, 4% both the cash and shares element and 3% just shares.
Of those investors planning to use their ISA allowance this year, some 75% of active investors, and 40% of the general public, plan next tax year to use all of the new ISA allowance of £10,200. This is not surprising given the number of investors worried about the new increased levels of tax.
Stock market vs housing market
Active investors are still backing the stock market over the housing market with nearly half (45%) expecting equities to outperform property. This is down on last year when 54% shared this opinion. Despite this, confidence in the housing market has increased this spring to 12% compared to a measly 2% in spring 2009. However, it is fair to say that the nations ‘love affair' with property is still very much over.
On the flip side, the general public are still backing property to outperform over equities with 21% backing property and just 13% equities. This is a sharp increase on March 2009 when 10% of the general public thought the housing market would produce better returns and 7% thought that the stock market would do better with the majority, 56%, believing that both property and equities would produce bad returns, whereas this year this number has dropped to 27%.
Investors keep the faith in the UK
Once again active investors continue to favour the UK, with 64% saying they are mainly investing in the UK. It is clear that an increasing number of active investors are putting money into emerging markets perhaps indicating the increasing risk appetite of investors and the popularity of these regions. 13% of active investors (up from 6% in March 2009) are mainly investing in emerging markets and 10% in Asia Pacific (up from 4%), followed by Europe (6%) and North America (3%).
Favourite sectors
Blue chips are still the most popular sector with active investors with 25% finding them the most attractive sector at the moment. The sectors behind blue chips are resources and commodities (17%), utilities (12%), smaller companies (11%), technology (8%), pharmaceuticals (8%) and financials (6%).
Annabel Brodie-Smith, Communications Director, AIC, commented: "With a general election on the horizon, it's clear that investors consider the prospect of tax changes to be the biggest threat to their finances. It's not surprising that more investors are planning to use their ISA allowance this year to avoid the clutches of the taxman.
"Investor confidence amongst active investors is slightly down on last year, indicating that investors are now a bit more cautious having seen such an impressive market recovery. However, an increasing number of active investors are favouring emerging markets indicating an increasing appetite for risk and the popularity of this sector.
"Investment company ISAs allow investors to spread their investment risk, have independent boards to look after shareholder interests and are available from as little as £50 a month. Over the last decade a £1,000 investment in the average investment company has increased by 49%."