Investors have become more cautious than they were during the height of Covid-19, according to Hargreaves Lansdown, holding more cash in their various ISAs.
The investment platform found that 31% of its clients who had deposited into a Stocks & Shares ISA left money in cash, compared with 25% in both 2021 and 2020.
A similar trend was identified across Lifetime ISAs (LISA) and Junior ISAs (JISA). In the former 63% was left in cash this year versus 59% in 2021 and 56% in 2020; in the latter it was 42% versus 39% last year.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said it was “hardly surprising” that investors were hesitant to “take the plunge with their ISA”, given how much uncertainty and volatility there has been in markets recently.
Knowing when to deploy cash can be a tough decision and is only made harder when market volatility is high, like it has been the past few months.
One of the main sources of this volatility is Russia’s invasion of the Ukraine, which started just over a month ago. The initial attack sent almost all assets trending downwards, apart from a few areas such as gold, oil, gas and other commodities.
Prior to this, investors were faced with rising inflation and interest rates, which had propelled a market-wide rotation out of growth and into value, a dynamic not really seen in the market for more than a decade.
This shift caused many of the leading portfolios of the past 10 years to underperform.
Discussing what hesitant investors could do now, Wall said they should avoid trying to wait out the uncertainty for a clearer outlook too much.
“Investors should be mindful that timing the market perfectly is near impossible however, so waiting for total certainty can mean missing out on gains,” she said.
Indeed, Trustnet previously asked a group of financial advisers what investors with excess cash should do and they resoundingly echoed Wall’s view: that time in the market was more important than timing the markets when it came to dealing with volatility.
But, for those who are wary at the moment, Wall suggested drip feeding in cash, or setting up a direct debit to automate the decision.
“Remember that a well-balanced portfolio is the best way to combat market volatility and should offer exposure to mix of higher-risk asset such as equities alongside lower-risk assets such as bonds,” she said.
“Funds focused on capital preservation, such as strategic bond funds and multi-asset funds with a cautious approach, are good additions to an equity portfolio if you struggle to navigate the uncertainty.”