By Lea Pachta
Safety is the most important element when considering investment options, according to the latest research from Fair Investment Company.
When asked what they think the most important element of investment is, 61% of respondents said safety compared to just 31% who said returns.
Nick Scarrett, head of pensions and investments at Fair Investment Company says that following the near collapse of so many banks and financial institutions, many investors can now see the risk they are taking when they chase higher returns.
“Prior to the credit crunch, you had to go back years to the last time a mainstream bank had gone under – for most people, it was just not something they could ever envisage happening. But now, they have seen it happen and are much happier going for a safer institution with slightly less competitive rates than risking their money for a few extra percentage points,” he said.
Nick says that before the credit crunch hit, banks that eventually went under like Icesave were offering in excess of six percent on savings when mainstream high-street accounts were paying much less, so investors and savers were rushing to get those rates.
“But now, it is obvious why they offered those rates and people are simply not willing to take those kinds of risks anymore,” said Nick. “And, with rates so low and the differences between rates so small, investors who have their money with a safe institution are not going to move their money to somewhere less safe for relatively little potential gain.
“Plus, I think people’s whole attitude to investment has changed; investors are more realistic, they are just looking for secure returns in excess of inflation. No one is looking for the market leading rates anymore.
Nick also suggests that with the FSCS (Financial Services Compensation Scheme) now in place, which covers the first £50,000 per person, per FSA regulated institution, diversification is much more important for many investors.
“Where in the past an investor who had say £250,000 may have put their cash in one or two places, they may now decide to put £50,000 with five separate institutions to guarantee the safety of their cash should any of the institutions go under,” he said.
While safety is definitely the most important element of investment for the majority of those surveyed, back in October, investors were slightly less cautious. When asked the same question six months ago, 51% of investors said returns were most important while 45% said safety. George Ladds, head of research at Fair Investment Company, explains why this could be.
“Some investment funds have seen a huge surge over the past six to twelve months, with the bailout of the Greek economy and uncertainty in other European countries in recent weeks; there is less confidence in the markets which means these gains could be lost. This could explain why investors are more cautious than they were six months ago as it could be that they are looking to encash gains that they have made,” he said.
He continued, “as Nick said, investors have seen the evidence of what can happen when too many risks are taken, so it would make sense that investors would be putting safety before returns, while those that were taking some risks while the markets were rising are maybe now thinking that they should take the gains now and re-invest into more cautious investments, for example guaranteed/protected funds or absolute return funds.”