The psychology behind favouring cash instead of investing

Psychology could be one reason why some people are reluctant to invest, even when it fits into their wider financial plan. 

Managing risk is an important part of life. You check the road before you cross the street, and you might be encouraged to take out home insurance just in case something happens. So, it’s not surprising that people often seek to minimise financial risk. 

Yet, data suggests that Brits are more risk-averse when considering investing than other nations, including the US. According to Manchester Metropolitan University (21 July 2025), excluding workplace pensions, only 23% of people in the UK invest in the stock market, compared with nearly two-thirds in the US. 

The difference in the number of people investing indicates that it’s possible to shift away from a mindset that views investing purely as a risk and instead considers the potential benefits.

3 psychological reasons you might prefer cash to investments

1. Market movements can make investing feel uncertain 

The value of investments moves up and down as they’re affected by numerous factors. While this is a normal part of investing, it can feel unsettling.

Manchester Metropolitan University suggests that UK media coverage can heighten the feeling of unpredictability. It notes that there’s an imbalance in coverage, with a sharp drop being more likely to feature in headlines than a steady recovery that follows in subsequent weeks. As a result, readers might have a bleaker view of how markets are performing than the reality. 

2. The fear of losing money could mean you favour cash 

The fear of potentially losing money could lead some people to avoid investing.

The theory of loss aversion suggests that people feel more strongly about losses than they do about similar gains. Some people may shy away from investing without fully considering the risks and opportunities.

An Aviva survey (8 July 2026) found that 46% of people believe that investing is too risky.

There is a risk that investment values will fall and you may not get back all the money you invested. However, when you consider your wider financial plan, you may find that investing is right for you. You can work with your financial planner to assess what level of investment risk is appropriate for your goals and circumstances.

3. Cash is tangible, which may make it feel safer 

One reason holding cash might feel comfortable is that it’s more tangible than investments.

People often have a better understanding of cash than investments. If you hold it in a current account or easy access savings account, you can withdraw it from an ATM. Being able to access your money easily can provide a sense of security, even if cash isn’t an appropriate option for your financial goals. 

The pitfalls of cash when working towards long-term goals

If you’re saving for short-term goals, such as a holiday or kitchen renovation, cash could be the right choice. However, when it comes to long-term goals, the impact of inflation could mean cash doesn’t retain its value as well as it first seems.

Inflation refers to the cost of goods and services rising. The Bank of England (BoE) aims to keep inflation at around 2%, though it has been above this target since mid-2021. Data from the Office for National Statistics (19 August 2026) shows inflation was 2.9% in the 12 months to July 2026.

Rising costs could erode the value of your savings in real terms if the interest earned doesn’t keep up with inflation. The BoE (19 August 2026) calculates that if you placed £10,000 in a savings account in 2020 until July 2026, you would have needed to earn £3,125 in interest to maintain its spending power. 

When you’re saving for long-term goals, the impact of inflation could become more pronounced. 

While investing does involve taking risks, it may provide an opportunity for your money to grow faster than inflation and support long-term goals. 

A financial planner could help you change your approach to investing

If you’d like to review how you approach investing and whether the amount of cash you hold is appropriate, a financial planner could offer support. By helping you understand your risk profile and how investing might support your goals, we could help you feel more confident when making financial decisions.

Please contact us to arrange a meeting. 

Please note:

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.