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FOOL'S EYE VIEW
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Carburton Street, London -- A new report from Datamonitor highlights some worrying statistics. Although share ownership is gradually becoming more popular, 40% of the population's savings remain firmly in the bank or building society. What's more, following recent share price falls, Datamonitor suggests savers will continue to shy away from the stock market to instead wait for a recovery. However, perhaps the most concerning part of Datamonitor's report is that the average UK household is said to have just £5,356 saved or invested. All in all, there are plenty of savers who fail to heed the basic Foolish guidelines. Here's a summary of Datamonitor's figures: According to Datamonitor, the average UK household has £2,118 stashed away in a savings account. That compares to £1,926 held directly in equities and £770 invested in a unit trust or investment trust. With money also hoarded in National Savings, cash ISAs and other savings vehicles, in total, the average household has just £5,356 in their investment kitty. In light of these findings, there are three Foolish messages that need reiterating: 1) Shares beat cash Long term, shares beat cash. Or at least they have done since records began. The CSFB Equity-Gilt Study tells us that, over the last 80 years or so, the London stock market has returned an average annual rate of about 12% (around 8% after inflation is accounted for). It has far outperformed cash in a deposit account (which has returned nearly 6% per year or about 2% after inflation) and gilts (which have also returned about 6% per year or around 2% after inflation). So get this. If, like the typical UK household, you've got half your savings languishing in a bank account, seriously consider the stock market as an alternative. Remember, there's no rocket science needed to invest in shares for the long term. You can harness the market's returns very effectively by making regular contributions into a cheap index tracker. 2) Don't wait for the stock market to recover Commenting in the report, Datamonitor's James Allingham said: "Through 2002, there is likely to be an investor trend to move away from direct equities... to less volatile forms of investment. The trend away from shareholding is likely to be reversed through 2003 as consumer confidence in the economy rebounds. Households will reduce their deposits and move... into equities in response to consistent stock market growth." Or in other words, investors are likely to "sell low, buy high". Sure, the stock market has fallen over the past year or two. But ever since the dawn of time, upturns have always followed downturns and bull markets have always followed bear markets. So, if you're a believer in shares outperforming over the long term, what's the point of deferring an investment now? More than likely, you'll be investing at a much higher level sometime in the future. 3) Get Saving! With any financial study, there's bound to be a degree of error. Indeed, by not including property or borrowings, there's plenty of scope to misinterpret the latest report. That said, the underlying picture is quite apparent. With each UK home reputedly having only £5,356 tucked away, undoubtedly there are many households that have no savings whatsoever. Most people should be saving for their retirement. And although there are few guarantees when it comes to investing, one thing is certain: you will not have a comfortable retirement if you rely solely on the State Pension. At the moment, the very most you can expect from the government in your old age is just under £5,000 per year. According to the Fool's Guide To Retirement Planning, to keep most people in the luxury they're currently accustomed to, retirement pots of over £200,000 will be needed in future. So the message is simple: Get Saving! More: Why Trackers Beat Cash | Why You Should Still Invest | Fool's Guide to Pensions | Datamonitor 1995 1996 1997 1998 1999 2000
Per
household
Cash (£) 1,842 1,914 2,033 2,138 2,279 2,433
Bonds (£) 159 155 169 211 228 227
Equities (£) 1,536 1,703 2,163 2,206 2,840 2,696
Total (£) 3,536 3,771 4,384 4,554 5,347 5,356
Cash (%) 52.1 50.7 46.8 46.9 42.6 45.4
Bonds (%) 4.5 4.1 3.8 4.6 4.3 4.2
Equities (%) 43.4 45.1 49.3 48.4 53.1 50.3
The figures highlighted are obviously skewed by the interest payments and capital growth generated over the years. But the general message is pretty clear. We Brits remain a cautious lot. In fact, probably too cautious. On average, people appear to have their money equally split between cash-based savings and some form of equity-based investment. Notably, gilts, corporate bonds and the like don't appear to get much of a look-in.