5% risk free? Why I’m still buying UK shares

Rising interest rates have created new choices for UK investors. It’s now possible to earn a 5% return on cash, risk free.
Recent data from the Hargreaves Lansdown (LON:HL.) website suggests to me that many of the firm’s investment clients are embracing this opportunity. Nearly 15% of the cash invested in individual securities (not funds) by HL clients last week was used to buy UK government bonds. From what I can see, these typically offer a yield-to-maturity of about 5%.
Hargreaves has a market share of about 40% in the UK, so I reckon this is probably a reasonable barometer of how private investors with share dealing accounts are allocating their cash.
In addition to this, there are plenty of cash savings accounts on offer at the moment offering 5% interest, backed by FSCS guarantees.
It’s not too hard to see why investors are happy to accept a capped upside in exchange for protection from losses.
Many of the small-cap and mid-cap stocks favoured by private investors have performed badly over the last couple of years, with the AIM market down nearly 40%:

With the...