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May 5, 2020

High-income households are the most willing to take on riskier investments due to COVID-19

By Patrick Brusnahan

The COVID-19 pandemic has had adverse effects on the global stock market, wiping out years of gains over the course of a few weeks. As a result, high-income households are willing to take on more investment risk in order to recoup losses once the market rebounds.

High-income households are much more willing to take on additional investment risk as a result of COVID-19, according to GlobalData’s 2020 UK Life & Pensions Survey. Almost one third (32%) of respondents with a household income of at least £150,000 per year are more willing to take on increased investment risk due to COVID-19. This proportion steadily falls with decreasing income.

 

high income households

In addition, high-income households are more likely to have suffered significant losses on their investments as they are more likely to hold riskier assets like equities and equity-based investments. On the other hand, low-income households are more likely to hold their wealth in safe-haven assets like deposits, limiting their exposure to the stock market crash. This explains the high proportion of low-income households whose risk appetite has remained unchanged.

They also have the luxury of having greater disposable income that they can afford to lose, allowing them to invest in riskier assets like equities and equity-based investments. These investments should rebound once countries reopen and business as usual resumes. At the time of writing, the FTSE100 had rebounded 15.2% from March 23, 2020 – its lowest point since the pandemic began.

Therefore, high-income households are incentivised to hold riskier assets due to COVID-19. These assets are likely to provide greater returns and help high-income households recover some of the losses they suffered during the crash.

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