Investors name stock markets king once more
CASH has been king for the last two years while interest rates rocketed but now it looks like it’s losing its throne as investors return to the stock market.
Just one in six higher earners are taking out tax-free cash Isas this year, with a quarter favouring stocks and shares Isas instead, new research from platform InvestEngine shows.
Nearly nine in 10 believe investing will offer better returns than cash in the long run, and the gap will widen once inflation falls and the Bank of England starts cutting interest rates.
Andrew Prosser, head of investments at InvestEngine, said: “Many expect investment in stocks and shares to be the best route to growing wealth in the long term.”
Investors have started the year in an optimistic mood, said Emma Wall, head of investment analysis and research at fund platform Hargreaves Lansdown.
Many favour technology funds after the runaway success of the so-called Magnificent Seven US mega-caps: Alphabet, Apple, Amazon, Microsoft, Meta
Platforms, Nvidia and Tesla. The US stock market is breaking new highs and Wall said clients are playing the trend by investing in tech-focused investment funds Blue Whale Growth and Liontrust Global Technology.
Investment fund Jupiter India is highly popular too as the country’s stock market booms.
The UK’s FTSE 100 ended 2023 strongly but fell in January and is down 2.41 per cent over the last 12 months.
Investors are shunning UK funds as a result but Wall said: “Contrarian investors should consider this a great opportunity to buy at depressed prices.”
Interactive Investor collectives editor Kyle Caldwell said L&G Global Technology Index has five of the Magnificent Seven stocks among its 10 largest positions, with smaller stakes in Amazon and Tesla.
But he warned: “Investors who buy this passive indextracking fund strategy need to be comfortable with its top two holdings, Apple and Microsoft, having huge individual weightings of 17 per cent.
There are concerns that after a stellar 2023, US tech stocks look expensive and could fall in value.
Interactive Investor clients are keen on Royal London Short Term Money Market, a low-risk fund that aims to offer a high yield but with relatively low risk. It currently pays income of 4.96 per cent a year, and can be bought inside a stocks and shares Isa.
There is good news for those who don’t want to take a risk on shares, with cash Isa rates up sharply over the last year.
According to Moneyfacts the average easy access account now pays 3.30 per cent against a rate of 1.85 per cent last February.
The average one-year fixed rate cash Isa now pays 4.51 per cent, up from 3.41 per cent.
Among best buy cash Isas, Leeds Building Society pays 5 per cent with instant access. Shawbrook Bank offers a one year fixed-rate bond paying 4.98 per cent, while United Trust Bank pays a fixed rate of 4 per cent for five years.