It will come as no surprise to learn that recent turbulence in world stock markets has had a major impact on confidence among investors. The Association of Investment Companies (AIC) recently carried out a survey on active investors over their perceptions of the economic outlook and how this has affected how they are managing their money.
The research found that 71 per cent had made no changes to their investment strategy and claimed they were unworried by continuing predictions of a downturn.
However, 26 per cent of respondents said they had begun saving more each month and were cutting their spending in the face of the volatility.
Annabel Brodie-Smith, communications director at AIC, said: "The credit crunch and recent market volatility have created a trying time for investors and it has led to a fall in investor confidence. Its not surprising active investors are backing resources at a time when oil prices are at record levels."
The study also found that 37 per cent of active investors believe a recession is the biggest threat to their finances, with 26 per cent claiming they are most concerned about a stock market crash.
Volatile stock markets might have turned this year's individual savings account (ISA) season into a damp squib, but those who failed to use their annual allowance by the end of the tax year will have lost the tax break which can never be reclaimed.
Sales figures for unit trusts and open-ended investment companies (OEICs) paint a bleak picture: retail assets under management fell by 7% in January as stock market turbulence led to a near halving in the amount of buying by private investors.
Net retail sales stood at £550 million in January, according to the Investment Management Association (IMA), down from £912 million a year ago. Equities bore the brunt of the outflows as investors took a flight to safety; bonds were the most popular asset class, enjoying £184 million of inflows.
A total £68 million flowed out of ISAs - a far cry from inflows of £17 million the previous month and £30 million in January 2007. It has been estimated that Britons are wasting £382 million in tax by not putting their money into the tax-efficient vehicles, double the amount last year.
Almost a quarter of a million pounds is being paid unnecessarily in tax due to cash being held outside ISAs and £133 million due to equities not being held in the wrappers.
It’s a strange quirk of human nature that we all like buying clothes and shoes at a 50% discount in the sales, but when it comes to shares or investment funds we always tend to buy at the top and run for cover when prices fall.
That’s not to say we’ve reached the bottom, but I’d be surprised if the value of a well-chosen portfolio of shares or unit trusts purchased today wasn’t sharply higher in five years time. However, if you hold equity ISAs, Unit Trusts or OEICs, it is absolutely crucial is to monitor the performance of your funds to ensure that they are continuing to deliver. This is where Moneyspider.com’s unique rating system, updated daily, can really make the difference.
Tony Ahearne, Director, Moneyspider Limited.
Tony has been an Independent Financial Advisor for over 30 years. (The above article is based on the author’s understanding of the new rules and investors are advised to take their own professional advice.)