About a quarter of Canadians are losing confidence in the stock market and are now looking to cash out their investments, a new survey has found.
The survey, conducted by personal finance comparison website Finder, found that those looking to cash out amid recent market volatility may also be doing so because they're feeling a pinch in their budget.
Romana King, a personal finance expert with Finder, said Canadians are feeling the pressure when it comes to rising costs and may be looking to increase the amount of money they have on hand to make ends meet.
If Canadians have high interest loans, for example, they may be looking at their budget and wondering where else they can find money to lower their debts, she said.
Jason Heath, managing director of Objective Financial Partners Inc., said he wasn’t surprised that some Canadians have lost confidence given that the TSX is down about 10 per cent over the past year and the S&P 500 is down about 17 per cent.
"Some of the high-flying tech and meme stocks from 2021 have had a terrible year in 2022," he said.
He explained that investors can often make the mistake of being emotional or reactive to short-run performance as opposed to investing for the long-term.
“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,” he said.
The report said that of those looking to cash out, lower and middle income households made up the majority.
The findings also differed along generational lines. The younger the investor, the more certain they are that the market will go from bear to bull again, the report found. They were also more confident they would earn a profit in 2022, regardless of current conditions.
Baby boomers, on the other hand, had less confidence that they’d be able to meet or exceed their investment return projections for the year, and were more likely to want to cash out.
In this scenario, older investors may also be looking to make retirement withdrawals.
For Canadians planning to stay in the market and navigate a downturn, their top three investing strategies are to buy and hold (41 per cent), income investing (nine per cent), and index and a few select holdings (seven per cent).
If stock market volatility makes investors uncomfortable, Heath said they may need to assess their asset allocation and consider having less risk in their investment portfolio.
“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."
"It can be hard enough to be right once, let alone twice, with market timing. Even the experts tend to do a poor job of wholesale moves in and out of stocks.”
Young investors should consider whether there is a buying opportunity to get stocks at a lower price, he said.
“Others should remember that North American stocks returned over 25 per cent in 2021, which is like three good years of investment returns in a single year – so, arguably, we have just given back some of that temporary wealth.”