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Investors sell out of stocks to combat cost-of-living crisis

22 September 2022

Data from Equiniti shows that around half of DIY investors had sold shares so far this year.

By Jonathan Jones,

Editor, Trustnet

Almost half of savers have been forced to sell some of their investments to see them through the current cost-of-living crisis, according to research from Equiniti.

A survey of DIY investors found that around 44% had sold shares to free up cash to cope with soaring inflation and household bills.

Thera Prins, chief executive of UK shareholder services at EQ, said: “Investors typically look to invest with a long-term horizon to build wealth but the current economic environment means a lot of people are being forced to rip-up their plans.

“Inflation is at a 40-year high, which is putting immense pressure on household finances, therefore it’s no surprise that many people are looking to make up the shortfall by selling out of their investments.”

Last week, data from the Office for National Statistics showed that inflation dropped below 10% in August, coming down from its peak of 10.1% in July.

This month, new prime minister Liz Truss has announced measures to combat the crisis, including freezing energy bills in October at £2,500 (for the average household), down from an expected £3,500 before the government’s intervention.

Although encouraging, Myron Jobson, senior personal finance analyst at interactive investor, said that investors would still need to “strap in for a winter discontent for personal finances”.

Investors, particularly those between the ages of 18 and 40, have taken proactive measures to combat this, with men more likely to sell than women.

Prins said: “There is nothing wrong with [selling], but it’s important that investors who dip into their pots to cover bills think of how they are going to replace those funds when that financial pressure subsides.”

She noted that retail investing has boomed over the past two years, as people looked to overcome low to no interest rates and capitalise on a recovering market post Covid-19, a time in which most were able to save during the pandemic with little to spend their money on.

“However, this enthusiasm now seems to be waning as inflation carnivorously eats away at wages, savings and discretionary expenditure. While we may see a contraction, especially among younger investors who may no longer have the extra funds to invest in equities, this doesn’t mean the end,” she said.

“In fact, it seems Gen Z are now a force to be reckoned with, so once this cost-of-living crisis is over, we may well see more of an evolution of the retail investing landscape, and a continuation in younger, hungrier investors.”

The report also found that investors had been quick to ditch their ethical standards, with around a third selling out of environmental, social and governance (ESG) stocks in search for better returns elsewhere.

Indeed, so far this year oil majors and commodity stocks have led the market as prices have soared, although neither area is viewed as “ethical”.

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