Years of interest rates languishing at an all-time low are encouraging older investors to consider risky investments to boost their pensions.
More than half of investors with financial firm Saga have their cash tied up in growth or aggressive growth portfolios, says research by the firm.
They told researchers that they were prepared to stand the risk in a bid to find a higher return for their cash.
Only 10% of investors were cautious with defensive portfolios.
Most over 50s were also reinvesting their income to boost profits.
The survey found that the two-pronged disadvantage of low interest rates and rising inflation was forcing many over 50s to take chances with their investments so they had bigger retirement funds.
Hunt for income
The Bank of England’s official interest rate has sat at 0.25% since August, and registered a meagre 0.5% for the previous seven and a half years.
Saga spoke to 10,000 investors over 50 years old.
- 44% agreed they would take a higher risk for a higher return
- 30% opted for an income and growth portfolio
- 10% declined taking higher risk for a defensive portfolio
More than half also reinvested income to make their portfolios grow faster.
“The analysis has revealed the popularity of an income approach to investing – the logic being that many people believe dividend-producing companies are a better bet than those targeting capital growth, so they invest into income-producing investments even though they don’t need that income right away,” said Sally Merritt, head of product for Saga Investment Services.
Inflation shrinking cash savings
“Of course, there is no right or wrong when it comes to investing, but it is interesting that our clients are investing in this way.”
Merritt argued against holding large sums in cash as inflation rises, with an increasing cost of living eroding spending power.
“If you hold your money in cash you are in effect seeing your buying power shrink before your eyes. We are observing that more people would like to invest, but are potentially put off because they believe that all investments are high risk,” she said.
“People are not opting for the most aggressive or defensive portfolios, but are choosing products offering the chance of some gain, without high risk.”
