Britain’s most confident savers have five common habits that help them achieve their financial goals.
The British hold a majority of their wealth in cash accounts, according to BlackRock’s latest Investor Pulse survey, and they are less likely than other Europeans to use a financial adviser. Yet the survey also identifies a group of British people who have found the right balance of financial planning and feel more in control of their financial futures. This, the third of three articles on Britain’s savings habits, looks at these so-named SMART investors.
SMART investors come from all age groups and income brackets, and they behave in certain ways that allow them to look to the future with more confidence. They take their financial planning seriously and are the top savers and investors in their age group. They are also more self-assured in their ability to make their own investment decisions. Overall, 13% of participants in the BlackRock survey fell into this group.
SMART investors take their name from their five key habits. More specifically, they:
Save and invest more;
Make retirement a priority;
Actively invest for income and growth;
Recognise the need to spread their investments; and
Take planning and financial advice seriously.
The detailed results of the survey bear this out. SMART investors save and invest twice as much as the national average. While 83% say they enjoy managing their investments, 64% consider themselves to be active investors, against the UK average of 22%.
Compared with the UK average of 56%, 82% of SMART investors are saving for retirement. They are twice as likely to feel well-prepared for retirement, and over four-fifths of them prefer to invest for the long term. They are also twice as likely as the UK average to own an income-generating investment product, and they use a wide variety of them.
Income is important
Interestingly, while half of the people interviewed by BlackRock say it is important to them to generate an income from their investments, most do not hold any income-generating products. These include bonds, shares and property, which generate income or produce a ‘yield’ in the form of coupons, dividends and rent. The products do not have to be used solely for earning an income but can grow wealth if the income is reinvested. Of those who own income products, there is a near-equal split between those who invest it back into the market and those who take or spend the income.
Among SMART investors, the majority prefer to reinvest the income rather than spend it. They make extensive use of cash, but they diversify their portfolios to a much greater extent – over half of them own equities and one-third own bonds. Lastly, they are serious about planning and getting professional advice. As well as taking more time to monitor their investments, and taking a stronger interest in learning about them, one-third currently use financial advice – twice the national average. SMART investors are more likely to maintain their adviser relationship, thereby benefiting from professional advice on an ongoing basis.
One tangible benefit of being a SMART investor is that the time taken to achieve a given lump sum is shorter. SMART investors were on track to achieve ‘financial freedom’ in 21 years, compared to 35 years for the average investor, according to BlackRock.
The wisdom of elders
On the principle that we can all learn from the experience of others, the survey concludes with a section called ‘The Wisdom of Elders’. It asked everybody in the survey – from 25-year-olds beginning their careers to 74-year-olds with a lifetime’s experience – what advice they would give to their younger selves. This is what they said:
- Start saving for retirement from a younger age (47%)
- Save more generally (43%)
- Spend less (33%)
- Pay off debts sooner (32%)
- Think longer-term with savings and investments (27%)
Source: BlackRock, August 2014