As the end of the Isa season rapidly approaches, new research from Dragon Capital has revealed that one-in-three (32%) UK retail investors say their appetite for risk has increased since the start of 2023.
Possibly buoyed by recent strong market returns, the survey showed one-in-four investors (26%) plan to use more of their £20,000 ($24,642, €22,704) Isa allowance compared with last year, with 5% of those asked saying their risk tolerance has increased “dramatically”.
According to Dragon Capital, the investment manager for Vietnam Enterprise Investments Limited (VEIL), the average UK retail investor will have used £5,649 of their stocks and shares Isa allowance in the 2022/23 tax year, rising to an average £6,537 amongst those with a stocks and shares Isa or Sipp.
“Stock markets around the world have experienced a significant rally in recent months and it appears to have given retail investors in the UK the confidence to take on more risk,” said Dien Vu, portfolio manager of VEIL.
“Despite the ongoing tough economic climate, it’s encouraging to see that many retail investors will have invested more in their ISA and Sipp this year compared with the year before, although it’s clear that the cost-of-living crisis is hampering the ability for a significant proportion to invest as much as they’d hoped to,” he added.
According to the research, about one in six (16%) of those UK retail investors polled said they will have invested less in their stocks and shares Isa or Sipp in the current tax year compared with the last, investing an average of £3,833 less. Some 70% blamed the cost-of-living crisis as the main reason.
For those investors less convinced about the recent rally and still worried about volatile markets following the recent banking collapses in the US and Europe, Jason Hollands, managing director of Bestinvest, recommended investors “dash for cash” to secure their Isa allowance.
“Private investors may feel they are facing a conundrum as to whether it is a good time to be investing in a stocks and shares Isa at the moment, and where to invest their Isa, but in reality, current market turbulence should not determine whether they take up their Isa allowances,” he said. “Isas are a precious annual tax allowance available on a ‘use it or lose it’ basis with the value of their tax-free status building over time as the savings and investments within them grow.”
For those unsure of where to invest, or are nervous about investing in the current climate, Holland’s advice is just to secure the Isa account initially with cash, and to decide where and when to invest it later.
“It is often the case that investing during periods of market turmoil and when the headlines are worrying prove rewarding over the long-term – but it never feels comfortable at the time,” he said.
“Hindsight is a wonderful thing,” he added. “A sensible approach to investing in periods of uncertainty is to funnel your cash into your chosen investments in stages to help iron out the effect of short-term market gyrations. This is an option open to those who secure their current year allowance with cash.”