So the Central Bank of Ireland has produced a very solid research piece providing a snapshot of what Irish investors want and where they are putting their money.
Firstly it’s a lot of money!
The net wealth of Irish households has more than doubled in the last decade to €1,288bn.
The headline conclusions from the research don’t come as much of a surprise.
Compared to our European neighbours, we are quite a conservative bunch, with almost 40% of our financial assets in cash compared to an average 30% level elsewhere. We are much closer to Poland and Cyprus than we are to Denmark and Sweden.
When it comes to moving up the risk scale and investing directly in stocks, bonds or investment funds, we are at a significantly lower level than our neighbours. Irish households hold just 2.3% of their financial assets in direct investments such as listed equity and debt securities, compared to the EU average of 7.5%.
Where we do stand out is our holdings of pension funds, which in turn would be invested across different asset classes. The figure for Irish households is relatively high when compared with some other EU countries, though it is well behind other international comparators including the UK and the US.
Why are we relatively so cautious?
Interestingly a lot of it may have to do with our history. For generations, access, awareness and participation in capital markets was seen the preserve of a small community of wealthy investors. So it was a “not for the likes of us” factor for many.
Then from independence in 1922 up to the late 1960s, the Irish economy experienced a long period of economic stagnation, and our living standards lagged well behind our European neighbours. Even when things dramatically improved, we experienced periods of financial instability and crisis (boom-bust cycles), such as the 2008-2013 economic and financial crisis.
This history and experience is casting a long shadow on our financial behaviour.
When you drill into the responses of investors and non-investors provided in the Central Bank research, confidence and attitude to risk emerge time and time again.
In the answers to questions on what the motivations to start investing were, factors like a sense of achievement or making quick money are way down the list. The single most important motivation is quite conservative – to increase savings for retirement. And when we look at investment goals, again pensions and healthcare needs are top of the list.
How do investors think about risk? Again our conservatism comes to the fore. Nearly 70% of investors state they want moderate risk and will accept moderate returns. In fact 20% say they would be happy with low return if it came with low risk. “Shooting the lights out”, as an investment strategy, seems to only appeal to 1% of investors surveyed.
What’s the biggest reason for those who are not currently investing? While not having enough money is up there, the biggest thing holding people back is fear of losing money. There is also an undercurrent of not trusting financial institutions in many of the answers.
Risk aversion is not limited to those who already have assets invested – but is also a factor for those who don’t currently invest.
So what are the take-aways for the industry from this perspective of what investors want?
It’s not about increasing the range of product available – nearly 70% of respondents already feel overwhelmed by what’s on offer at the moment.
If we want to increase the overall level of investor participation, the answers lie in growing the knowledge and understanding of how investment can play a role in financial well-being.
This knowledge, together with enhanced confidence and trust, can make for a more active and, crucially, resilient investor.
It’s not a quick fix.
Tradewinds 