Rachel Reeves is right, but she is walking a tightrope — with our money
The government is on a mission to get more savers investing in the stock market. Reeves is planning an advertising campaign to help explain the benefits of investing — rather than highlighting the risks — and from April the Financial Conduct Authority, the City regulator, will offer 'targeted support' that will allow banks to alert customers to specific investment opportunities. 'For too long, we have presented investment in too negative a light, quick to warn of the risks without giving proper weight to the benefits,' Reeves said.
But she didn't stop there. The chancellor also wants to roll back regulatory rules, not just for investment products (risk warnings will be tempered) but also for mortgages (so that it will be easier to borrow more).
Encouraging more people to invest; offering bigger loans to hopeful first-time buyers; and forcing pension funds to invest in the UK. It's all part of the government's masterplan for growing the economy. And for much of this she's right. It is true that UK savers are not keen on investing in the same way as our American counterparts. This can be seen clearly in how we use Isas, with two thirds of accounts held in cash rather than stocks and shares. According to a YouGov survey, 55 per cent of the public were unwilling to invest in stocks and shares.
Most of us need to invest more and stop our love affair with cash. There is a belief that investing is akin to gambling — not helped by the stringent 'your investment can go down as well as up' warning displayed on every money billboard, piece of paperwork and website. Savers so often forget that leaving your money in cash isn't risk-free, especially in a high-inflation environment. More savers need to become investors.
But let's not forget why those regulatory rules were introduced in the first place. Are we now heading back to the hazy days of 2008 when you could get a loan for more than a property was even worth? Light regulations, then a crash, then tighter regulations: it's the same old merry-go-round, with seemingly no lessons learnt from the last ride.
• How to get a nation of savers investing
And again, as is so often the case, politicians are ignoring that this is our money, not theirs, that they are playing with.
The right choices need to be promoted. So much could go wrong if the wrong advice is given or unsuitable products are pushed. Investing in high-risk vehicles such as the long-term asset fund that invests in private markets and infrastructure assets could open the door to a potential mis-selling scandal. Yet the plan is for savers to be able to do this through their Isas.
For most beginner investors, the best way to dip a toe into the market is typically by investing in a standard tracker fund. Not only will your assets be diversified (as you invest in often hundreds or even thousands of different companies to spread your risk), you will also keep charges low.
Banks, which will offer this new targeted support, typically only have a limited number of investment products on offer and while that often includes a tracker, they tend to be more pricey than the industry average.
• The cheap and easy way to invest (without the risk)
As for mortgage lending, as I've written before, there's a fine line between responding to the needs of borrowers and putting them in a difficult position if rates were to take another turn or property prices were to fall.
It could be a risky business — but then, never being able to get on the property ladder could be the greatest risk of all.
Risk can pay off, but we're walking a tightrope. It's all about getting the balance right.@JohannaMNoble
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