The cost-of-living squeeze is dramatically affecting people’s investment plans and activity, according to the latest Investment Forces research from Charles Schwab UK. Three out of four (74%) investors are rethinking their plans, and over half (55%) are scaling back investments, according to the broker.
Amongst a range of macro themes, including interest rates, the value of the pound and turmoil in the cryptocurrency markets, UK investors ranked the cost-of-living crisis as having the biggest impact on investment decisions – and not just in the short-term.
Confidence in investing has fallen steadily since December 2021 when the last survey was conducted. There has been a 6% decline (to 36%) in the number of investors who are increasing how much they invest, and an 8% decline (to 45%) in the number of investors who claim their investments have increased in value during that time frame.
Richard Flynn, Managing Director of Charles Schwab UK, explained: “The current socioeconomic environment in the UK is having a worrying effect on the behaviours and attitudes of British investors. The majority of UK investors are now looking to scale back their investments, or have already done so.”
This also explains the drop in trading volumes in many UK stocks which were very popular during the pandemic and associated lockdowns, and is also creating value opportunities for stock buyers in some areas of the market.
Younger and inexperienced investors are feeling the impact most
The cost-of-living crisis and recent market volatility is having a disproportionate effect on younger generations of investors. Almost three quarters (73%) of Gen Z investors are unsure how best to adapt their investment strategies to protect against losses in the current financial climate; this rises to 74% amongst Millennials but drops to 50% amongst Boomers.
Confidence in making investment decisions as a result of the market uncertainty has also declined drastically amongst younger investor groups. Since December 2021, 19% fewer Millennials find it easy to make investing decisions and, when they do, over three-quarters rely on advisory services to help them (in comparison to 62% of boomers). 74% of Gen Z investors have needed to make extensive changes to their investment strategies to avoid big losses in the last three months, compared to 27% of Boomers.
Investing itself is becoming increasingly unattractive to newcomers. The number of ‘new’ investors (i.e. investors who have taken up investing in the past year) has dropped 5%, from 23% to 18%, since December 2021.
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“It is also worrying to see so many young investors struggling to make investment decisions – almost three quarters of Gen Z and Millennial investors don’t know how to adapt their investment strategies to protect against losses in the current financial climate,” said Flynn at Charles Schwab. “It is vital that [younger investors] have access to educational tools and resources to help them navigate the ongoing market turbulence.”
The Armchair Trader will be continuing to provide regular features on investment strategy and education, including articles that are suited to investors who have not been in the market for very long.
Charles Schwab conducted its online survey to understand the attitudes and behaviours of UK investors in the context of current conditions affecting financial markets. Respondents were aged 18 or over and held at least one type of investment (based on a list of different asset classes, vehicles and other investment instruments). Survey responses were collected and analysed from 1,000 UK respondents. The survey captured a natural spread of demographics across age, region, gender, working status, income and total value of savings and investments.
