Britons Less Likely Than Americans to Invest in Stocks

UK chancellor Rachel Reeves would like Britons to invest more in stocks - particularly UK stocks - rather than keep their money in cash. She has even urged the UK finance industry to be less negative about investing and highlight the potential gains as well as the risks.

Stock ownership is important for governments for a variety of reasons. Boosting capital markets can encourage business expansion, job creation and long-term economic growth. It can also give people another source of income in later life, especially as long-term investing can offer greater returns than saving.

But in the UK, excluding workplace pensions, only 23% of people have invested in the stock market, compared to nearly two-thirds in the US. Survey results suggest that American consumers are generally more comfortable with financial risks.

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And it appears that a greater degree of risk translates into closer political engagement. During market shocks driven by US president Donald Trump's tariff chaos, many Americans tracked headlines - and their portfolios - closely. This contrasts with the UK, where most people keep their savings in safer assets like cash savings accounts or premium bonds.

If Britons are more risk-averse, media coverage that tends to be noisier when markets fall than when they recover may be having an impact. While concerns regarding market volatility may be valid, they can overshadow the long-term benefits of investing.

One key opportunity that many British consumers have missed out on is the rise of low-cost, diversified exchange-traded funds (ETFs), which have made investing more accessible and affordable. An ETF allows investors to buy or sell baskets of shares on an exchange. For example, a FTSE100 ETF gives investors exposure to the UK's top 100 companies without having to buy each one individually.

This is exactly the kind of long-term, low-cost investing that Reeves appears to be promoting. But should savers be worried about current market volatility - much of it driven by trade tensions and tariff uncertainty? One view, of course, is that volatility is simply part of investing.

But it could also be argued that big shifts within the space of a single month are often exaggerated. People are also likely to be put off by news headlines, which tend to exaggerate the swings in the market.

Examining daily excess returns in the US stock market from November 2024 to April 2025, I plotted cumulative returns (which show how an investment grows over time by adding up past returns) within each month. April 2025 stands out. Despite experiencing several sharp daily losses, the market rebounded swiftly in the days that followed.

This pattern isn't new. Historically, markets have shown a remarkable ability to recover from short-term shocks. Yet many potential investors could be deterred by alarming headlines that, while factually accurate, often highlight single-day declines without broader context.

The reality is that the stock market is frequently a series of short-lived storms. These are volatile, yes, but often followed by calm and recovery.

Fear and caution

During market downturns, it's common for people to try to understand why this time is worse or analyse if this crash is more serious than previous ones.

The fear these headlines generate could feed into barriers to long-term investing in the UK. And that's one of the challenges the chancellor faces in encouraging more Britons to invest.

For those already invested in the stock market, short-term declines are part of the journey. They are risks that can be borne with the understanding that markets tend to recover over time.

My analysis of daily US stock market data since 1926 shows that after sharp daily drops, the market often rebounds quickly (see pie chart below). In fact, more than a quarter of recoveries occur within just a few days.

But this resilience is rarely the focus of media coverage. It's far more common to see headlines reporting that the market is down than to see follow-ups highlighting how quickly it bounced back.

Research has shown that negative economic information is likely to have a greater impact on public attitudes. For example, a sharp drop in the stock market might dominate front pages, while a steady recovery over the following weeks barely gets a mention. The imbalance reinforces a sense of crisis, even when the broader picture is less bleak.

Unbalanced reporting can distort perceptions, discouraging potential investors who might otherwise benefit from long-term participation in the market. It appears that American perceptions of their finances are also affected by news coverage in a similar way.

Over the long term, the difference between stock market returns and the generally lower returns from government bonds is known as the "equity risk premium puzzle". Economists have long debated why this gap is so large. Some observers argue it may narrow in the future . But many others, including the chancellor, believe that investing in the stock market remains a beneficial long-term strategy.

If more people are to benefit from long-term investing, it's vital to tell the full story. That means not just highlighting when markets fall, but following up on how they recover afterwards.

Sam Pybis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.