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What makes investors tick

With the FTSE 100 hovering around the 6,000 mark and calls from some quarters for bank rate to remain at 0.5 per cent, given the current economic climate, it will be interesting to see how investors respond.

Some would have you believe it is still doom and gloom while others remain positive about the economic outlook.

The IMA is about to conduct another of its investor perspectives surveys to find out where consumer appetite for investing lies for the year ahead. A similar survey in August 2010 found investor confidence was mixed, with roughly a third upbeat about investment prospects, slightly less than a third not feeling confident and the remainder sitting on the fence.

Did investor behaviour reflect these sentiments? Figures for investment fund sales for 2010 have not yet been published but figures to the end of November show retail investors had already invested £21.4bn compared with the record £23.7bn for January to November 2009.

Looking at figures from previous years it is probably safe to say 2010 will be the second-best year ever for net retail sales of investment funds. Would most people have predicted that at the start of the year? Probably not.

Does this echo the confidence levels we found in our survey? On the surface, maybe not, but taking a more in-depth look at what investors actually did in 2010 reveals their appetite for investing was based on putting money into all asset classes across the board.

It is not all doom and gloom but there is always room for people to invest more. People need to save more and we must find ways of helping them to do so.

This reflected a shift in behaviour – and probably attitude – compared with the period before the credit crisis. Back in 2007, investors were prepared to build up their holdings solely in equity and property funds. In 2010, although they continued to invest in equity and property funds at the same rate, they also began to diversify into other asset classes, putting significant amounts of money into bonds, absolute return and balanced funds.

As a result of this prudence, or even sophistication, investors had more diversified balanced portfolios in 2010 compared with 2007. The fence-sitters were hedging their bets.

So it is not all doom and gloom but there is always room for people to invest more. As the Government constantly reminds us, people need to save more and we must find ways of helping them to do so.

Our next survey will explore what type of incentives might make people invest more, both in general and in a pension. Is it to do with needing a better understanding of products or is it down to charges? Or even a need for better tax benefits? The answers will help to understand what makes existing investors tick but we also need to find ways of helping those who currently do not invest at all. They may respond to similar incentives or they may need a completely different approach.

In any event, let’s hope investor confidence remains so that any incentives that do see the light of day will be taken up.

Mona Patel is head of communications at the IMA

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