Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
It has been a strange year. A year in which fear and boredom have existed side by side.
On the one hand danger has been lurking around every corner - from the risk of catching the virus, to the risk of losing your livelihood. Yet on the other hand, boredom has in reality eaten up most of our time, as we have ‘stayed home’, missed out on seeing friends and loved ones, the chance to travel and all the usual opportunities we get to broaden our horizons. Instead we have binged on boxsets, takeaways and Zoom calls and had to put much of life on hold for another day.
For so many people - at least those who have been able to ‘stay home’ and ‘stay safe’- the pandemic has sanitised and white-washed our day-to-day lives. It doesn’t take much of an armchair psychologist then to hazard a guess as to what is driving the boom in ‘get rich quick’ style investing, with young people in particular jumping on the bandwagon of every passing social media investment trend.
It seems that while we have been in lockdown, the thrill of the new has had an obvious allure for this new breed of investors. So much so that the City watchdog, the Financial Conduct Authority (FCA) has issued a warning about the risks of putting money into high-risk assets like cryptocurrencies and following other trends, without fully appreciating or considering the risks.
The research, carried out by the FCA has identified that these dare-devil investors are typically female, under 40 and BAME (Black, Asian and minority ethnic) - the exact same people who have tended to be most adversely affected financially by the pandemic and also financially disadvantaged anyway, because of their gender or the types of jobs or working patterns they typically do.
The research shows that these investors often display high levels of confidence and typically claimed to have sufficient knowledge about the decisions they were making. However, what is more telling is the lack of awareness and/or belief in the risks of investing that was actually witnessed by the researchers, with over four in 10 not viewing ‘losing some money’ as one of the risks of investing, even though, as with most investments, their whole capital was at risk.
These investors, the research shows, tend to place a strong reliance on gut instinct and rules of thumb, with almost four in five (78%) agreeing “I trust my instincts to tell me when it’s time to buy and to sell” and 78% also agreeing “There are certain investment types, sectors or companies I consider a ‘safe bet’”.
Worrying enough is the fact that the research found that for many of these investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest.
This proved particularly true for those investing in high-risk products for whom the challenge, competition and novelty are more important than conventional, more functional reasons for investing like wanting to make their money work harder or save for their retirement.
It seems 38% of those surveyed did not have a ‘traditional’ investment goal - such as saving for their retirement, generating a nest egg, investing for their children or for a specific goal, within their top three reasons for investing; instead the emphasis appears to have been more on the thrill of the chase.
What is even more worrying is that, as is the case with women, these investors are typically already among the people who have significant financial obstacles to overcome - pandemic or not.
So, the triple threat of the gender penalty that exists, compounded by the pandemic and made even worse by risky decision taking, is a potentially toxic combination that could lead to financial problems for years, if not decades, to come.
Either way, with the end of the tax year looming, now is the time to ensure that you end the 2020-21 tax year with your money well invested and a firm grip on your future financial goals.
The FCA advises all investors to consider five important questions before they invest:
1. Am I comfortable with the level of risk?
2. Do I fully understand the investment being offered to me?
3. Am I protected if things go wrong?
4. Are my investments regulated?
5. Should I get financial advice?
And above all, do not feel the need to ‘panic invest’ just so you can beat the deadline. If you have money to invest and the clock is ticking before 5 April, then you can always invest it in cash within an ISA and make your investment decisions as and when you are ready.
You can also now do everything online, giving you more time to invest calmly and rationally by the tax year-end deadline. You can open a Fidelity Stocks & Shares ISA any time of day or night. All you need do is fill in a few personal details, so we know who you are, including your National Insurance number and payment details. If you’ve already got a Fidelity ISA it’s even easier. Just log in and add cash.
When you are ready to make your investment choices, we have plenty of recommendations and suggestions for you - from Tom’s Picks for 2021 to the Fidelity Select 50 Balanced Fund and our Investment Finder, a powerful tool that lets you search and filter the thousands of investments on offer.
And if you need to speak to us, you can. Our UK & Ireland-based teams are available on 0333 300 3350 with extended opening hours over the Easter weekend.
Good investing is about making smart and considered decisions that will give you the financial future you want. By taking advantage of the tax incentives available to you, you are simply making it all that bit more rewarding too.
Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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