About a quarter of Canadians have lost confidence in the stock market and are now looking to cash in on their investments, according to a new survey.
The survey, conducted by personal finance comparison website Finder, found that those looking to cash out during recent market volatility may also be doing so because they are tighter on their budget. . Romana King, personal finance expert at Finder, notes that Canadians are feeling pressure from rising costs and may be looking to increase the amount of money they have to make ends meet. Canadians with high-interest loans, for example, may look at their budget and wonder where to find money to reduce their debt, she explains.
Jason Heath, managing director of Objective Financial Partners, is not surprised that some Canadians have lost confidence, since the Toronto Stock Exchange’s benchmark index has fallen about 10% in the past year and the index US S&P 500 erased about 17%. “Some of the tech and meme stocks that were climbing steadily in 2021 had a terrible year in 2022,” he points out.
Investors can often make the mistake of being emotional or reactive to short-term performance, instead of investing for the long term, he explains. “These results support the idea that successful equity investing generally requires patience and a time horizon of more than five years. But short-term losses tend to panic some investors,” Heath observes.
Survey results show that low- and middle-income households make up the majority of people looking to cash out. Differences are also observed between generations. The younger the investor, the more confident they are that the market will once again rise instead of fall, according to the report. This type of investor also has better hope of making a gain in 2022, regardless of current conditions.
Baby boomers, on the other hand, were less confident that they would be able to meet or exceed their investment return projections for the year, and they were more likely to want to cash in. In this scenario, older investors may also seek to make retirement withdrawals.
For Canadians looking to stay in the market and weather the downturn, the top three investment strategies are buy and hold (41%), income-oriented investing (9%), index funds and a few hand-picked assets (7%). For those less comfortable with stock market volatility, Heath notes it might be time to assess asset allocation and consider reducing risk in the investment portfolio. .
“Periods like this are a good test for investors,” he said. If one has a long-term time horizon, one should avoid panicking and try to sell and buy back at a lower level. It can be hard enough to be right once, let alone twice, with market timing. Even the experts tend to do a poor job when it comes to wholesale trading for buying or selling stocks. »
Young investors should consider whether there is a buying opportunity to get stocks at a lower price, he adds. “Others should remember that North American equities returned over 25% in 2021, which equates to three solid years of ROI in a single year. So we could arguably say that we just made some of that wealth temporary. »
The Finder poll was conducted online by Censuswide in July among 1,013 Canadian adults. According to the Canadian Marketing Intelligence and Research Council, it is not possible to assign a margin of error to surveys conducted online since their sampling is not random.