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Wealthy investors miss out on returns due to ‘fear of loss’

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UK's wealthy investors are missing out on achieving their longer term financial goals, as fear of loss means they are locking their savings into low returns.

A new report from BlackRock uncovered investors’ emphasis on short-term returns and a misconception of long-term risk.

The UK average amount of savings in cash is £36,966; 85% of UK investors hold cash, the highest in Europe. 

Worringly, 17% of these investors are holding on to more than £100,000 in cash. 

The report found there is a mismatch between investors who on the one hand said growing their long-term wealth is one of their highest financial priorities, and those unwilling to take any risk with their money.

Alex Hoctor-Duncan, head of EMEA retail at BlackRock, said: “For some investors, the stark contrast between their longer-term financial goals and their current positioning requires them to think and invest differently, to see how emotions may be holding them back from taking the best and most objective course of action.”

The report showed there is a strong acknowledgement among the mass affluent group that funding later life is increasingly the responsibility of the individual, but many point to not having enough to spare and save as the reason for not saving for retirement.

However, a quarter has not yet started planning for their retirement and of those currently planning for it, 30% are not confident that they will achieve the level of income they want in retirement.

Life expectancy for 65-year-olds is well above 15 years, and the ratio of retirees to working-age adults is now around one retiree for every four people of working age across the European Union.

Investors understand the increasing funding gap and the need to make their money last longer and work harder but are frightened to take steps out of cash.

The report also highlighted how the behaviour of those now saving for retirement contradicts many of the lessons current retirees say they have learnt. Nearly half of the retirees surveyed said they would have done something different knowing what they now know about retirement.

Hoctor-Duncan said: “Increased life expectancy, the slow extinction of generous pension arrangements, state privations and low yields from traditional ‘safe haven’ assets are just the beginning of the challenges facing investors.

“They will also need to adopt a more outcome-oriented approach and accept that achieving their financial goals may involve taking some risk.”

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