interactive investor comments on the latest HMRC statistics showing how the investment landscape has shifted.
- The number of adults under 25 who opened a stock and shares ISA doubled in the first pandemic-stricken tax year to 243,000 from 112,000 2019-20 tax year (latest figures available).
- ISA subscription among 25–34-year-old cohort grew to 533,000 in 2020-21 from 273,000 in 2019-20.
- 2.5 million 25–34-year-olds subscribed to an ISA during 2021-21 - then any other age range.
Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “This latest data shows us how quickly the environment can change – and why it’s important to have a balanced portfolio. There was an investment sugar rush among young people in the first Covid-19 stricken tax year, with many seemingly using the extra time on their hands, resulting from lockdown measures in place, to research and delve into investment opportunities, either as a new hobby or as a way to diversify their income streams.
“There is a sense that young people sat up and took notice of the boom in stock markets and wanted to get in on the growth story which saw most of the major market indices surge to new records high. While interactive investor’s youngest customers on average tend to have balanced portfolios, looking across the landscape it’s clear that the elephant in the room is cryptocurrency, GameStop (NYSE:GME) and the broader meme stock phenomenon which also helped to motivate a new generation of young adults to engage with investments.
“The pandemic stock market boom has been followed by a malaise amid rampant inflation and rising interest rates. Cryptos have also suffered.
“While it is easy to get caught up in the hype around the latest high-risk ‘get rich quick’ investment, it is important to take a step back and remind yourself of why you are investing in the first place. Investing is a one man/woman’s race. As such, your investment strategy should align with your attitude to risk and your investment time horizon.
“interactive investor’s younger adult customers, as measured by the ii Private Investor Performance Index, on average, have maintained balanced portfolios, with a good blend of shares, investment trusts, funds and ETFs – with the 18–24-year-olds cohort having a clear preference for investment trusts, while ETFs is also higher than the overall average. It will be interesting to see if there have been any significant changes in the next instalment of the index due to be published next month.”
Alice Guy, Head of Pensions & Savings, interactive investor, says: “It’s great to see more young people aged 25-34 subscribing to ISAs during 2020-2021, then any other age range. 2.5 million 25–34-year-olds subscribed to a ISA during 2021-21 compared with only 1.7 million 45-54 year olds.
“And younger people are also winning the race to invest in stocks and shares ISAs with 533,000 ISA subscriptions, compared to 504,000 for investors aged 55-64.
“Young people are increasingly savvy and understand the benefits of long-term investing and [that] returns can snowball over time. It’s great to see young people are getting started early as investments made when you’re young have longer to grow.
“The data suggests that young people are already thinking and planning ahead for the future. With more young people than ever enrolled in auto-enrolment pensions, many young people are already used to investing and are now becoming stocks and shares ISA investors as well.
“It’s also great to see that older people have the largest ISA balances. Retirees often rely on those ISA balances to supplement their pension income in retirement. Just like pensions, ISAs allow your wealth to grow free from capital gains tax, dividend tax or income wealth, all of which can eat into your wealth over time.
“It’s important for people to think about all their wealth sources when they’re planning for retirement, as ISAs as well as pension wealth can really make a difference in building wealth for a comfortable retirement.”
Renewed love affair with investment ISA during the pandemic years, while popularity for cash ISA waned
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “It’s official: the nation renewed its love affair with investments during the pandemic years. The accidental savers phenomena, where people saw their bank balances benefit from fewer outgoings during the restrictions on movement, translated to a total of £68 billion being paid into stocks and shares ISA from April 2020 to April 2022, up £21.2 billion for the previous two-year period.
“The uptick in investments witnessed in the first year of the Covid-19 pandemic spilled over to the second year, with a record £34 billion subscribed in the 2021-22 tax year, while the number of people funnelling money into the investment tax wrapper reached its highest level ever of 3.9 million. Many of those who invested were rewarded, evidenced by an 8% increase in the market value of adult ISA holdings from £741.6 billion at the end of 2020 to 2021 – driven by a 14% increase in the market value of funds held in stocks and shares ISAs.
“Meanwhile, we fell out of love with cash ISAs. The 2021-22 tax year saw the second-lowest number of cash ISA subscribers ever, down 920,000 on the previous year to 7.1 million people. The total paid into these accounts was down £5.9 billion from a year earlier and down £17.8 billion from 2019-2020, a large portion of which was Covid-free, to £30.9 billion. This is a direct result of paltry interest rates on cash savings, which had been stuck in the doldrums since the financial crash, but were depressed further as part of monetary stimulus measures to combat the economic impact of the pandemic.
“Rampant inflation has turned the economic landscape on its head with interest rates racing ahead in a bid to quell rising prices. The subsequent reprieve in cash savings rates has been drowned out by the stubborn persistence of high inflation - with the real value of savings remaining in the doldrums. Those who can afford to put money away for five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.”
Alice Guy says: “It’s encouraging to see more people investing in stocks and shares ISAs, showing that people’s appetite for investing is growing.
“The elephant in the room is that not enough people are investing. Sticking your money in cash is great for short-term savings and may be the best option for a rainy-day fund. But cash saving lags far behind investing in terms of building long-term wealth and saving for retirement.
“This is where financial education comes in. We might spend a lot of effort at school teaching kids how to draw a graph or solve a quadratic equation, but we don’t teach them how to avoid a financial scam, pay off credit card debt or invest to build wealth for retirement.
“It’s a common misconception that you need to be rich to invest. You don’t need to have a lot of money to invest. Even saving £50 per month in a stocks and shares ISA can mount up over time. £50 per month invested every month from the age of 20 could build up to £119,609 by the time you reach state pension age at 68.”
Alice Guy, says: “It’s frustrating but not surprising that women’s ISA wealth lags behind men on average, despite more women subscribing. Women are great at saving but [are] often doing so on a tight budget and [are[ taking longer to build wealth.
“Women are also more likely to invest in cash rather than stocks and shares, compared with men. This reflects the fact that women have lower salaries on average, and they often have limited disposable income. They need ready access to rainy-day funds to supplement their income and may not be able to afford to invest for the long term, needing to keep more cash ready to hand.”
Myron Jobson says: “The Junior ISA allowance stands at a generous £9,000 for each tax year but, in reality, few are fortunate enough to maximise the allowance, with the average parent saving £1,229 - which is down slightly from £1,297 the year before. But even modest sums invested in a stocks and shares Junior ISA can produce returns that far outstrip the interest rates offered by cash savings over the long term – although along with the potential for greater returns, comes the potential for losses.
“It is difficult enough investing for yourself, so the prospect of investing for your children and the possibility it may go wrong is a challenge for even the most experienced investor - which may explain why so many parents still choose to save their Junior ISA in cash, with 737,000 subscriptions in cash Junior ISAs versus 475,000 in 2021-22. However, history shows that even a ‘middle of the pack’ fund is likely to compare favourably with cash over 18 years. So, you don’t need to be an expert stock picker to benefit.”
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