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Investors Cutting Back to Pay for Essentials: Study

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What You Need to Know

  • A study from Wells Fargo & Co. shows that two-thirds of investors repeatedly check their phones when the market declines.
  • More than 40% surveyed say that they want to cash out of their investments.
  • A quarter of respondents with money in the stock market say they are investing less to free up cash.

Doomscrolling,” or continually checking one’s phone when a terrible event has its grip on the country or the world, has gone through several phases over the past decade — from the protests around George Floyd’s murder to the pandemic to Russia’s invasion of Ukraine.

Now, a new study by Wells Fargo & Co. finds that two-thirds of investors are repeatedly checking their investments on their phones when the market is going down. Fifty percent of male respondents and 27% of female ones said they check the value of their investments multiple times per week.

This is understandable, as 77% of investors surveyed expressed concern about fluctuations in the market, and 66% said they are nervous about their money.

They are so nervous, in fact, that 42% want to cash out of their investments, and 29% said they would cash out their IRA or 401(k) investments if they could do so without tax penalties.

Inflation Is the Culprit

Inflation is cutting into household budgets, with a quarter of respondents with money in the stock market reporting that they were investing less so they could use their cash for regular household expenses — in particular, groceries, transportation, gas, utilities, debt and housing.

Participants with money in the stock market consider inflation the biggest threat to their investments. Two-thirds said lower inflation would make them feel more confident, and 44% said a decline in interest rates would do so.

Other confidence boosters respondents cited are decreased gas prices, end of the war in Ukraine, a shift in U.S. politics, an end to U.S. labor shortages and a cure for COVID-19.

“Uncertainty on so many levels can cause people to focus in on their present self, or immediate needs and circumstances — and to lose focus on their future self, or more strategic priorities like retirement readiness,” Michael Liersch, head of advice and planning in Wells Fargo’s wealth and investment management business, said in a statement.

“The irony is that this is the moment when we need to keep balance between our present and future selves, and potentially even dedicate more, not less, to our future selves.”

Liersch said pulling money out of retirement accounts means locking in market declines, and holding money in cash means forgoing potential future investment returns.

“Saving and investing is not a light switch that you turn on and off, it’s better thought of as a dimmer switch that you should regularly revisit and dial up or down based on your present and future needs,” he said.

Indeed, 18% of investors in the survey said they want to take advantage of the down market and free up money in their budget to invest more. The top five budget areas where investors are cutting back to invest more are entertainment; personal spending, such as on clothes; restaurants; travel and vacations; and online subscriptions.

Versta Research conducted a national online survey in late September among 2,000 U.S. adults, of whom 1,163 have money invested in the stock market.

Investor Knowledge Boosts Participation Rates

The survey found that not only inflation is making investors wary of the market, so too is lack of investing knowledge. Only 44% of respondents purported to feeling confident in knowing where to invest in today’s market. And just 40% would give themselves an A or B grade in terms of their investment knowledge.

Among the 36% of all Americans who do not have any money in the stock market, 68% said they are unwilling to risk their money, 61% believe investing without a lot of money is not worth it, 50% cite lack of knowledge as a barrier and 27% believe that making money in the stock market is mostly a matter of luck.

The study also showed that 57% of investors feel overwhelmed by investment options and need advice. Two-thirds said they want a second opinion from others before buying or selling an investment.

Financial advisors, financial institutions and family are the chief resources investors turn to for advice, but those resources vary by generation:

  • 50% of Generation Z turn to family, and 44% check social media sites
  • 52% of millennials rely largely on family
  • 46% of Gen Xers and 55% of baby boomers say financial advisors are key
  • 10% of investors say they do not have anyone to turn to for financial advice

“When people think about the younger generations, they often think of them as DIY (do it yourself) individuals,” Liersch said. “Our data show that nothing could be further from the truth. Human beings not only want advice from their device — whether it’s on YouTube or TikTok — but from human beings as well, regardless of age.”