Why are more people investing than saving?

The number of people investing regularly rose to 37pc in Q3, according to the Bank of Ireland Saving & Investment Index.

More people are now investing than at any time since the Bank of Ireland Savings & Investment Index started in 2017, as consumers seek an alternative to low returns on cash and the appetite for savings drops with the re-opening of the economy.

The number of people investing regularly rose to 37pc in Q3 (up from 36pc in Q2), the highest since Bank of Ireland’s quarterly survey started tracking consumer sentiment towards saving and investment. Meanwhile, enthusiasm for saving continues to wane and just 44pc of consumers in the September survey say it is a good time to save, the lowest since February 2020.

“The normalisation in everyday life as restrictions ease is feeding through into how people view their savings and investment plans”

The overall Savings and Investment Index, which had registered a marked increase over the past year, dipped slightly in the third quarter to 102 (vs. 104 in Q2) as the Savings index weakened while the Investment index held steady. 

While the percentage of people who thought it was a good time to invest declined in Q3 (33pc vs 36pc in Q2) – reflecting recent conditions in investment markets – the figure remains higher than in pre-pandemic surveys (23pc). A larger percentage (37pc) felt it would be a better time to invest in six months and this figure has remained above pre-pandemic levels for the third quarter in a row.

The ‘TINA’ effect

“The normalisation in everyday life as restrictions ease is feeding through into how people view their savings and investment plans,” said Kevin Quinn, chief investment strategist at Bank of Ireland.

“There is perhaps less of a cautionary motivation to save and also a recognition that zero/near zero interest rates are providing less rewarding outcomes for savers. By contrast more people are investing as the so-called ‘TINA’ effect prompts a shift away from cash toward investments in the search for better returns.”

The TINA effect refers to ‘There Is No Alternative’ notion in investment markets currently. “TINA” has become a mantra of bulls, arguing that yields have been so low that bonds were hardly worth owning as an asset class.

“These findings are consistent with the path to a more normal, post-pandemic environment and I expect these trends to continue in the months ahead, even if the changes we are seeing in the investment environment make for more headwinds”.

Retirement optimism declines

The Retirement Optimism Index, which is tracked alongside the Savings & Investment index, weakened to 114 in Q3 from 118 in Q2. The number of people who said it would be easy to live comfortably during their retirement years dropped to 41pc from 45pc in June. Three in ten (30pc) consumers – higher amongst lower income earners – believe it will be difficult to live comfortably in retirement, up from 26pc in June.

“Over the past year our survey has tracked how people have become more optimistic about retirement, probably because lock down gave us all a greater exposure to life beyond work,” said Quinn.

“September bucks that trend somewhat, which may well reflect the realities of the ‘back to work’ environment and a greater appreciation of the challenge in achieving a comfortable retirement, particularly as our spending increases again.”

When asked about the pandemic, three in five people (63pc) said they remain concerned about a further wave of Covid-19 emerging. This speaks volumes about how mature Irish public opinion has become about the remaining risks despite the successful roll-out of the vaccination programme.

The next highest concern was family health at 57pc (which is down from 75pc in May 2020). One in 5 are concerned about their job (18pc compared with 38pc in May 2020).

John Kennedy
Award-winning ThinkBusiness.ie editor John Kennedy is one of Ireland's most experienced business and technology journalists.