Expert not surprised at Canadian investors' dwindling faith in face of short-term losses
A recent survey found that about 25% of Canadians are looking to cash out their investments as they are losing faith in the stock market.
According to a survey by the personal finance comparison website Finder, those looking to cash out amid the recent market turbulence may also be doing so because they're feeling the pinch financially.
Romana King, a personal finance expert with Finder, said pressure of rising costs is weighing on Canadians, which could be prompting them to increase the amount of money they have on hand to get by, reported BNN Bloomberg.
She said that if Canadians have high interest loans, for instance, they might be considering their budget and trying to figure out other ways to raise money to pay off their debts.
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With the TSX down about 10% and the S&P 500 down about 17% over the past year, Jason Heath, managing director of Objective Financial Partners Inc., said he wasn't surprised that some Canadians have lost faith in the economy.
In contrast to investing for the long term, he said, investors frequently make the error of being emotional or reactive to short-term performance.
“These findings are supportive of the idea that stock investing success generally requires patience and a five-plus-year time horizon. But short-term losses tend to cause some investors to panic,” Heath told the news outlet.
According to the report, most households seeking to cash out were of lower and middle incomes.
Along generations, the results varied as well. The report discovered that investors' confidence in the market's ability to turn bullish once more decreases with age. In addition, younger investors had greater assurance that, whatever the state of the economy right now, they would turn a profit in 2022.
On the other hand, baby boomers were more likely to want to cash out because they were less confident in their ability to meet or exceed their annual investment return projections. Older investors may also be considering retirement withdrawals in this scenario.
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Buy and hold (41%), income investing (9%), and index and a few select holdings (7%) were the top three investing strategies preferred by Canadians who intend to stay in the market and ride through the downturn.
Investors might want to review their asset allocation and think about taking on less risk in their investment portfolio, according to Heath, if stock market volatility makes them uneasy.
“Times like this are a good test for investors,” he said. “If you have a long-term time horizon, I would avoid panicking and trying to sell and buy back in at a lower level."
A buying opportunity to acquire stocks at a lower price should be considered, he advised young investors.
