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AIC: Lack of understanding biggest turn-off for stock market investment

18 September 2007
Despite recent instability in the stock markets, research from the Association of Investment Companies (AIC) has revealed that the biggest deterrent to potential investors is actually a lack of knowledge and understanding rather than the risk factor.

There was just a 3 per cent increase among the 2,230 adults surveyed in September who claimed they were worried about stock market risks (15 per cent) compared with the 2,110 respondents questioned in June (12 per cent).

Director general of AIC, Daniel Godfrey, said: ‘‘It’s interesting that a lack of knowledge scores so much higher than risk aversion as a reason for not investing in the stock market, suggesting it’s a lack of financial understanding, not apathy, that keeps many potential investors sitting on their hands.”

Affordability was the most common reason for not having any stock market exposure (47 per cent), while 32 per cent said they were not confident enough to invest due to a lack of understanding. Almost a quarter (24 per cent) stated that they simply did not know how to go about investing in the stock market.

With property often considered the safest investment option (48 per cent), 55 per cent of respondents revealed they have no involvement in the stock market at all. Building societies and bank accounts were preferred by 22 per cent, while just 11 per cent considered the stock market the best means of long-term investment growth. Alarmingly, 1 per cent, believed their cash was safest kept under their mattress.

Women were more cautious then men in terms of stock market exposure. Of those considering investing in the stock market for the first time, 42 per cent of men appeared keen compared with 27 per cent of women.

More than a third (38 per cent) of adults surveyed in June had no idea what the minimum lump sum for stock market investing was, with 25 per cent believing it to be over £1000. This far exceeds the £250 that most investment company schemes require as a minimum lump sum.

Mr Godfrey suggests that cautious investors consider regular saving, so that more shares are brought when prices are low, and less when prices are high.

“This helps to smooth the highs and lows of stock market investment and takes away some of the worry of timing the market,” he said.

While 52 per cent believed they could not afford to invest, 35 per cent of respondents said they would be more likely to do so if they could invest through the stock market in a pooled investment fund starting from £30 a month (or a £250 lump sum).

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