DIY Investors Increase Cash Reserves Amid Market Volatility
Key Findings from Charles Stanley Direct Research
- 56% of UK self-directed investors increased their cash holdings between February and April 2025.
- 65% of Millennials and Gen Z led the shift, versus 44% of Gen X and 31% of Baby Boomers.
- Alternative safe havens: 48% boosted gold exposure; 46% added property.
Context: Tariff Announcements and Market Reaction
In March 2025, US former President Trump’s sweeping tariff hike on imported steel and electronics—dubbed “Liberation Day”—triggered a 2.3% drop in global equity indices, wiping out over $4 trillion in market value in a single session. The shock reignited US–China trade tensions and prompted a sharp rise in equity volatility (VIX spiked to 28). Faced with uncertain earnings forecasts and supply-chain disruptions, DIY investors flocked to cash and near-cash instruments.
Why Cash Beats Equities in a Volatile Cycle
- Liquidity Premium: Money market yields climbed above 1.1% p.a. for the first time since 2020, as banks repriced 3-month Treasury bills and secured overnight financing rates (SOFR).
- Principal Protection: Cash avoids mark-to-market losses inherent in equities and bonds during drawdowns.
- Dry Powder for Opportunities: Liquid positions enable quick redeployment when valuations normalize.
Additional Drivers: Central Bank Policy and Yield Curves
The Bank of England maintained its policy rate at 4.25% in Q1 2025, while the Federal Reserve’s dot plot signaled a pause at 5.0%–5.25%. The resulting inversion of the 2s/10s US Treasury curve underscored recession worries, reinforcing cash’s appeal. Short-dated government debt and high-grade commercial paper now offer positive real yields once adjusted for the 3.4% UK CPI rate.
Alternative Safe Havens: Gold and Property
Around 48% of DIY investors increased gold allocations, attracted by its negative correlation to equities (Pearson’s r ≈ –0.2 in 2025). Meanwhile, 46% turned to residential and commercial property trusts, seeking rental yield cushions averaging 4.8% net.
Demographic Breakdown
- Gold: 61% of Gen Z, 60% of Millennials.
- Property: 58% of Gen Z, 61% of Millennials.
Deep Dive: Impact on Portfolio Risk Metrics
Shifting 10% of a 60/40 equity/bond portfolio into cash reduces portfolio volatility by an estimated 30bps, according to in-house Monte Carlo simulations at Charles Stanley Direct. The Sharpe ratio remains elevated during stress periods, highlighting cash’s role in drawdown mitigation.
Expert Opinion
“In times of uncertainty, liquidity is king,” says Rob Morgan, Chief Investment Analyst at Charles Stanley Direct. “Temporary cash allocations can help investors weather storms, preserve capital, and time re-entry. However, overexposure to cash long term risks real purchasing power erosion.”
Strategies for DIY Investors
- Tiered Cash Buckets: Maintain 3–6 months of expenses in instant-access accounts; allocate excess cash to laddered 3- to 12-month T-bills or high-yield deposit accounts.
- Opportunity Liquidity: Use money market funds as a staging ground for tactical buys in sectors hit hardest by tariffs, such as autos or semiconductor stocks.
- Rebalance Discipline: Automate rebalancing triggers to prevent emotional decision-making during spikes in volatility.
Central Bank Watch and Market Outlook
Looking ahead, the European Central Bank’s decision in June 2025 to hold rates steady at 3.5% and signal a data-dependent path adds another layer of complexity. Investors should monitor PMI readings, inflation surprises, and further trade developments to gauge whether the current cash preference will persist.
Methodology
The research by Censuswide sampled 1,000 UK DIY investors (aged 18+) between 30 May and 8 June 2025. Censuswide adheres to MRS and ESOMAR standards and is a member of the British Polling Council.