Nearly half of retail investors in the UK have turned to investing as a way to outpace the returns of traditional cash savings accounts, according to recent research.

Data from investment powerhouse Blackrock reveals that 42% of these investors began their investment journey with the goal of growing their wealth, reflecting a broader trend towards prioritizing long-term financial security.

Blackrock emphasizes the importance of financial education in motivating more individuals to invest, aligning with the objectives of Chancellor Rachel Reeves.

Over extended periods, a well-diversified investment portfolio typically outperforms cash savings. Over 10 to 20 years, investment returns can significantly outgrow cash returns, which often fail to keep pace with inflation.

Nonetheless, investing isn’t suitable for everyone. Cash savings remain the preferred choice for funds needed on short notice or within a five-year spending horizon.

For those interested in investing, the process has become increasingly accessible, with a variety of affordable digital platforms now available to help newcomers get started.

ETFs have surged in popularity over recent years, and there are now some 2.1million ETF investors in Britain

Timo Toenges, Europe, Middle East and Asia head of digital wealth at Blackrock said: ‘This reflects a growing recognition that investing can be an avenue to help build long-term financial security. Yet £1.7trillion is sitting in cash deposits across UK households.’

‘These findings highlight the enormous potential for people across the UK to make their money work much harder for them.’

Younger investors, according to Blackrock, are so worried about missing out on this growth that it is one of the main reasons they choose to begin investing.

Gen Z and millennial investors both said their main motivation to begin investing was a fear of missing out, with 22 per cent saying it is the reason they began, compared to just 14 per cent of those over 35.

Younger people said they were also heavily influenced by friends and family, being more than twice as likely to begin investing after being told to do so by those close to them, compared to older generations.

ETFs top choice for young investors

New investors are increasingly looking towards exchange-traded funds. These offer a low-cost way to invest in a diversified portfolio of stocks that requires much less prior knowledge than stock picking.

This is especially the case among younger people, with 90 per cent of those likely to invest in ETFs in the coming year being under the age of 44 (including pre-existing ETF investors). 

The passive funds have surged in popularity over recent years, and there are now some 2.1million ETF investors in Britain.

Despite this, some 64 per cent of adults have not heard of ETFs, and could be less likely to invest as a result.

Being made up of a number of assets, low cost due to their passive nature and very flexible, ETFs are often popular with investors who want to keep their costs down while still diversifying.

ETFs work by tracking a certain pool of stocks, and can be traded on an exchange in the same way as an individual stock.

The UK, Blackrock said, is now the third-fastest growing ETF market in Europe. This growth is being pushed by younger people and women, it said.

ETF usage among women is up 86.2 per cent since 2022, while among younger investors it has grown 87.5 per cent.

Toenges said: ‘The research shows ETFs are fast becoming the investment product of choice for younger generations. 

‘Their simplicity, low cost and ease of access make them ideal for first-time investors, especially those driven by seeing others grow their wealth and not wanting to miss out.

‘To help them invest with confidence, it’s crucial to pair this convenience with straightforward, accessible education on risk and returns.’

A third of investors see ETFs as a good way to start investing, while some 59 per cent say diversification is the main reason they choose the products.

A third, 32 per cent, said they chose ETFs because of the ability to invest small amounts regularly.