Emma Dunkley’s article on Barclays’ research revealing the excessive cash holdings of many Britons highlights a significant issue for potential investors (“Britons have at least £430bn in excess savings”, Report, September 14). I fully agree that more of this cash should be working for them in the stock market.
Investors suited to moderate risk portfolios forgo annual returns of 4-5 per cent over the long term by leaving their wealth in cash. Those who leave half their assets uninvested, on average, miss out on gains of 2-2.5 per cent of total wealth annually.
Over time, the effect of compounding magnifies these lost returns, significantly diminishing overall wealth. What may seem like a comfortable decision today can easily become one of the costliest decisions they make each year.
At Oxford Risk, we are developing technology, including behavioural nudges and interventions, to help investors avoid this pitfall. These interventions are most effective when tailored to an individual’s personality, preferences and circumstances. Modern advances in machine learning, data science and digital technology now make it possible to deliver behavioural engagement at scale. While these tools can work effectively in isolation, they achieve the best results as part of a co-ordinated system. The wealth management industry must prioritise delivering “behavioural alpha”, guiding clients away from costly emotional and behavioural mistakes. Helping investors overcome biases and fear, and ultimately make better decisions, can increase assets under management, improve returns and deliver value to clients — and without needing to beat the market.
Greg B Davies
Head of Behavioural Finance, Oxford Risk
London SW12, UK
