The United Kingdom is an outlier when it comes to risk appetite in our wealth management strategies. But why are we such a fearful nation when it comes to investing?
We’re a nation living with ‘investophobia’ according to various data sources. Our aversion to stocks and shares is so strong that City investment firm lobbyists have begun pressuring Chancellor Rachel Reeves to cut Cash ISA tax breaks to encourage more savers to invest in domestic businesses.
While a hearty 61% of American adults invest in the stock market, just 23% of Britons are comfortable placing their wealth into stocks and shares.
What’s causing such a significant discrepancy? And are UK adults justified in their stock market scepticism? Let’s take a deeper look at whether we could benefit from embracing a bigger risk appetite:
ISAs Show a Risk Divide
Individual savings accounts (ISAs) are a great barometer for UK risk appetite because investors have the option of subscribing to Cash ISAs, which offer fixed returns based on the Bank of England’s interest rates, or Stocks and Shares ISAs, which offer returns based on building a stock market portfolio.
According to figures compiled by The Guardian, more than 18 million individuals have a Cash ISA, and a collective total of almost £300 billion is sitting in the accounts.
Meanwhile, government statistics published in September 2024 have shown that the share of accounts subscribed to cash ISAs rose to 63.2% in the 2022 to 2023 tax year, representing a growth of 2.5%.
According to 2022/2023 tax year data, just 31% of ISA subscriptions were to Stocks and Shares ISAs.
These figures make for curious reading when considering the historical outperformance of Stocks and Shares ISAs. Over the past 10 years, the average rate of return for a Stocks and Shares ISA was 9.64%, compared to just 1.21% for a Cash ISA.
Additionally, Stocks and Shares ISAs offer subscribers the benefit of compounding their returns and dividends to be reinvested, creating a potentially far greater overall return.
Why are we Fearful of Stocks?
So, why are we so much more risk-averse than US investors? One answer is that we simply have a weaker stock market to whet our appetites.
Between 2020 and 2025, the London-based FTSE 100 grew around 7.5%, while the S&P 500, buoyed by an AI boom, rallied closer to 83%.
The 21st Century has seen the UK continue to fall behind the rest of the world when it comes to equities. While UK-listed equities accounted for 11% of the MSCI World Index just 20 years ago, this figure has plummeted to 4%. Many London Stock Exchange companies like Abcam, Ferguson, and Smurfit Kappa Group have moved to US markets in a bid to win over more investors as a result.
While many UK investors will be aware of Wall Street’s outperformance in recent years, our exposure to the weaker returns of the FTSE 100 is likely to dampen our enthusiasm for seeking riskier returns at a time when interest rates remain relatively competitive.
We’ve also experienced more than our fair share of stock market crashes in recent decades. The financial crash of 2008 remains fresh in our memories, and multiple market downturns in the 2020s have seen Cash ISAs become more profitable than their Stocks and Shares counterparts across multiple tax years.
But fundamentally, UK adults are simply less willing to take risks. According to research from Abrdn, some 55% of UK adults have a low risk tolerance when it comes to investing, with many preferring to hold their savings in cash or bonds.
Our unwillingness to embrace equities doesn’t simply compare to our more gung-ho American counterparts. Shockingly, the Institute for Public Policy Research (IPPR) found that the UK has trailed the G7 for investment in 24 out of the past 30 years, pointing to a national psyche that inhibits growth.
Embracing Stocks and Shares
The recent increases in investor sentiment towards Cash ISAs is an inevitable trend in some senses. The Bank of England’s base rate hikes and tech stock sell-offs on Wall Street created an environment where Cash ISAs could offer consistently higher returns than Stocks and Shares ISAs with very little associated risk.
However, the recent Wall Street rallies off the back of the ongoing AI boom have seen the S&P 500 rally to new all-time highs, far outpacing the profits made by the UK’s more cautious fixed-rate and bonds savers.
With this in mind, we’re likely to see a natural closing of the gap between Cash ISAs and Stocks and Shares ISAs as new data is released for more recent tax years. But the battle to grow the United Kingdom’s risk appetite and allay fears over the stock market is far from over.
In learning a thing or two from our American cousins, more UK savers could accelerate their long-term profit potential by embracing Stocks and Shares.