Brits are investing less than their American counterparts, research from Hargreaves Lansdown has shown.
The number of Brits currently investing in the stock market stands at around 23%, compared to 61% of Americans.
According to the research by Hargreaves Lansdown, more than a quarter (26%) of people said it was because Americans are more comfortable with risk. A similar number (25%) attributed it to cultural differences.
A fifth of those surveyed believe Brits prefer property as an investment, while 21% said they felt the incentives to invest are better in the US.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The Labour party says it wants to make it as easy as possible for people to feel the benefits of saving and investing their money. It’s also been big on the Conservatives agenda too. The tricky part is getting people to take a first step on their investing journey and dipping their toe into the market. It’s clear that millions of British people are failing to boost their financial resilience by not making a move while the stock market holds much more allure for Americans.”
Streeter said the highs of the US stock market in recent years has likely created a FOMO effect among US shareholders, while the London Stock market has been trading at a 43.5% discount compared to the US. While the FTSE 100 has reached fresh record levels in May, Streeter said it is still considered to be undervalued and unloved by many investors.
Hargreaves Lansdown said the tradition of being more self-sufficient to pay for medical bills and college education is also likely to have persuaded more Americans to start investing earlier, while more UK workers also benefit from a workplace pension compared to Americans. Only just over half of US citizens (53%) took part in their retirement plan at work, while the number of Brits participating in UK workplace pensions is 79%.
“Given the relatively high level of pension participation in the UK compared to the US, it seems as though people might not realise that they are investors even though the money they put aside for retirement is put to work in financial markets. Understanding how and where their pension is invested might kick start more curiosity and persuade more people to move their money from savings accounts into investments,” Streeter said.
According to Hargreaves Lansdown, UK households should create a new investing habit, such as moving extra savings they may not need for 5-10 years or more into stocks and shares ISAs. However, the investment platform said that while there has been a lot of talk around British ISAs kickstarting investment into the London Stock Exchange, the best way to encourage further investment would be by lifting the ISA allowance, without creating a new product and greater complexity.
Streeter added: “At the same time, stamp duty on UK shares is still paid within an ISA but not for overseas shares and levelling the playing field would boost UK equities further. It’s unreasonable and illogical for investors buying UK shares to have to pay stamp duty when overseas share trades are stamp duty-free. Alternatively, providing dividend or capital gains tax benefits for investing in UK stocks outside of ISAs would help.”
