Cryptocurrency warning as ‘risk-hungry’ young men pile in
Investment in cryptocurrency has surged in the past two years with younger men, in particular, piling into cryptoassets, according to figures released by the UK’s financial watchdog.
Analysis of the Financial Conduct Authority’s (FCA) Financial Lives report by AJ Bell found that nearly half (46%) of adult men now invest in crypto compared with 38% in 2020. More new young investors (16%) have a moderate-to-high risk tolerance when it comes to investing, with only 5% of older investors falling into the same category.
There has been a threefold increase in cryptocurrency ownership from 2% of the population in 2020 to 5.8% in May 2022. The figures show that 46% of new investors hold cryptoassets, which the FCA classes as high-risk investments.
Laura Suter, head of personal finance at AJ Bell, said: “Young men and cryptocurrency have put the rockets behind this surge in investing, but there’s been an increase across the board as pandemic savings coupled with high inflation have led more people to start investing.”
“The surge in the number of men investing means the gender investment gap has widened during this time – with men being more than one and a half times more likely to invest than women.”
Suter described a large proportion of new investors as “risk-hungry, emotional men” using social media for their research.
The FCA said last week that it was cracking down on so-called finfluencers promoting investments online.
“Two-fifths of new investors are investing directly in shares outside of an ISA wrapper, presumably driven by the rise in trading apps that boomed during the pandemic. While many may enjoy direct investing, rather than investing via funds, it’s unlikely to be the ideal starting point for many inexperienced investors,” warned Suter, “On top of this, 16% of new young investors said they had a moderate to high risk tolerance when it comes to investing, compared to 5% of older new investors. Taking higher risk with assets is fine if you’re not investing all your money and you can afford to ride out the highs and lows of volatile, riskier markets, but many signs point to people investing outside of their risk tolerances.”
It’s not just cryptoassets new investors are piling their money into. There has also been an increase in ownership of other high-risk investments, such as contracts for difference, peer-to-peer lending, mini-bonds and unlisted companies.
Worryingly, three in five people who have 25% or more of their investible assets in high-risk investments say that a significant investment loss would have a fundamental, negative impact on their lifestyle – highlighting a clear mismatch between their investment holdings and their risk tolerance.
Pension savings hold firm
The FCA’s Financial Lives report also revealed that savers and retirees remain resilient and are making sensible long-term decisions despite the pressure on household budgets caused by surging inflation.
Just 6% (1.5 million people) of pension savers reduced contributions or abandoned retirement saving altogether in the six months to January 2023 as a result of the rising cost of living.
Among those aged 55 or over with a pension in accumulation in May 2022, just 6% (300,000 people) had cashed in some or all of their retirement pot in the six months to January 2023 to cover day-to-day expenses as a result of spiralling living costs.
Tom Selby, head of retirement policy at AJ Bell, said: “If you are struggling with living costs and considering stopping or reducing pension saving, make sure you have considered all other possibilities before you go down this road.
“By opting out of your workplace pension, you are forfeiting your matched employer contribution as well as pension tax relief – and making it that little bit harder to build a decent-sized fund for your retirement. If you really feel there is no other option, make sure you have a plan to restart pension contributions when you are financially able to.”
The FCA also found that the gender pensions gap remains a significant challenge, with 71% of men building up a pension versus just 65% of women.
This disparity is likely to be in large part because women are more likely to miss out on auto-enrolment, either due to taking career breaks to care for children or because their earnings are below the £10,000 trigger.