One way to increase the vibrancy of capital markets is to increase the quantum and diversity of the capital that is invested. While it is a strength of UK capital markets that they are attractive to overseas investors, there may be an opportunity to improve the vibrancy of UK capital markets if UK retail investors could be encouraged to invest more.

In order to support UK policy makers in assessing the need for policy measures to encourage UK consumers to invest their savings for the benefit of the wider economy, we set out to use our wealth management experience to more accurately assess the following research question: What is the quantum of savings that could be invested, and what effect this could have on UK capital markets as part of a diversified strategy?

Using the FCA Financial Lives Survey 2022, we found that 13 million people in the UK have cash savings that could be invested. We estimate that these 13 million people could be holding cash worth £735bn.

Taking into account government-sponsored advice that individuals should hold an accessible cash emergency fund, and deducting this emergency fund from the total amount available, we found that there are cash savings of approximately £430bn that could be responsibly invested.

There would be differing levels of impact on UK capital markets depending on the choices made by each investor. But we provide an illustration of this using ready made investments and multi asset funds to estimate that between £14bn and £74bn could be invested in UK capital markets if these consumers invested using diversified investment products.

How to re-engage this group of savers should be the focus of policy makers, with the aim of enabling them to make financial decisions suitable to their circumstances and risk appetite. While connecting investing with growing the wider UK economy could be a way to kick start this re-engagement, encouraging inexperienced retail investors to directly invest in stocks and shares without further support and guidance regarding diversification and wider financial education could be counter-productive. Without the benefit of diversification to avoid the disproportionate effect of a poorly performing investment, we run the risk of scaring away a new generation of investors from UK capital markets.