Retail investors boost cash holdings to capitalise on peak rates

British retail investors are taking advantage of high interest rates by increasing their allocations to cash, with many building ‘dry powder’ to reinvest when markets look more attractive, according to the latest Retail Investor Beat (RIB) from trading and investment platform eToro

• Cash seen as most attractive asset class moving into 2024, ahead of equities, bonds and crypto
• Investors taking advantage of higher rates before likely trend downwards through 2024
• 37% of investors holding cash are amassing ‘dry powder’ with the aim of reinvesting when risk assets look more attractive

eToro’s study of 1,000 UK-based retail investors found that 22% currently see cash assets, such as savings accounts and cash ISAs, as the most attractive asset class, ahead of equities (18%), bonds (12%) and crypto (11%). This comes after 34% already increased their allocations in the second half of 2023.

Of those allocating more money to cash, 44% are primarily doing so to earn a solid return through higher interest rates, and 37% indicated they were building ‘dry powder’ with a view to reinvesting when risk assets look more attractive. Indeed, despite strong global equity market performance in 2023, fewer than one in four (22%) believe we are currently in a bull market; instead, the majority (52%) expect a bull market to begin at some point in 2024 or beyond. 

Commenting on the data, eToro Global Markets Strategist Ben Laidler said: “Retail investors in the UK have understandably looked to capitalise on high interest rates as cash handily beat the FTSE 100 last year. The cash-focused approach has also enabled some to stay flexible amid higher mortgage repayments and cost-of-living constraints.

“However, the new year typically prompts investors to reassess their portfolios, and with rates widely expected to dwindle over the coming months, we expect to see a steady return to ‘risk on’ sentiment through 2024.”

eToro’s study also revealed significant generational differences. More than two-thirds (67%) of UK investors aged 18-34 increased their allocations to cash in the second half of 2023; for investors aged 55 and above, the figure was just 27%. This is also reflected in respondents’ levels of experience: the majority (51%) of investors with fewer than ten years’ experience increased their cash allocations, as opposed to 29% of those with more than ten years.

Laidler adds: “The old adage, ‘time in the market beats timing the market’, clearly resonates with the more experienced investor base, and many will have been rewarded with stellar returns from the S&P 500, Nikkei and elsewhere in 2023, if not from UK stocks.”

About this report
The latest Retail Investor Beat was based on a survey of 10,000 retail investors across 13 countries and 3 continents. The following countries had 1,000 respondents: UK, US, Germany, France, Australia, Italy and Spain. The following countries had 500 respondents: Netherlands,  Denmark, Norway, Poland, Romania, and the Czech Republic.

The survey was conducted from 27th November – 8th December 2023 and carried out by research company Opinium. Retail investors were defined as self-directed or advised and had to hold at least one investment product including shares, bonds, funds, investment ISAs or equivalent. They did not need to be eToro users.