Some Investors Ditch Stocks as Interest Rates Boom: Survey

Among other findings:

• Rising interest rates prompted 25% of stock market investors to move money out of stock-related investments or deliberately withhold additional contributions to these investments, since the start of 2023 — outnumbering the 21% who contributed more.
• More than a third intentionally have not taken action due to higher interest rates, and 18% were unaware of the higher returns on safe haven investments.
• Elevated inflation this year caused investors to show a greater tendency (26%) to move money out of, or deliberately withhold additional investment from, stock-related investments than to increase contributions (20%).
•  Nearly half of investors took no action related to high inflation, and 9% reported they were unaware of elevated inflation.

Advisors Respond

Investor willingness to take advantage of these macroeconomic conditions is a positive development, advisors suggested.

“I think it’s good that investors are considering the significant change we’ve seen in interest rates and inflation and how that might impact their investments. The increase in Treasury rates, CDs and high-yield savings accounts may allow people who have a defined need (to) reduce their stock allocation,” Mike Hunsberger, Next Mission Financial Planning owner, told ThinkAdvisor via email.

“The critical factor for me is always the time frame when someone may need their money. If it’s less than three to years, it should be in safe assets. Beyond five years, stocks have historically performed well and can be key to growing your wealth,” Hunsberg said.

Alexis Hongamen, Total Financial Planning founder and president, also noted the importance of current returns for safer financial vehicles.

“I think advisors should be aware of the higher rewards that lower risk investments are now providing in this inflationary period we are experiencing. Possibly recalibrate our exposure to risk, when the returns from safer investments may satisfy our clients’ long term goals,” Hongamen told ThinkAdvisor via email.

“Survey results show a concerningly high amount of people have taken no action to fight inflation, leaving them exposed to a meaningful decline in the purchasing power of their money,” Jeremy Bohne, financial advisor and founder of Paceline Wealth Management, told ThinkAdvisor via email.

“If they haven’t recently taken action, it’s unlikely they did before so they probably aren’t well prepared. What works well in a period of high inflation is very different from what worked well during much of the last decade,” he said.

“Inflation is leading many people to invest cash sitting in their bank accounts, which may be good for those who were not fully invested, but bad if that cash was earmarked for a specific purpose, like an emergency fund or a house down payment,” Bohne continued. “It’s important not to invest cash set aside for an emergency fund, because in the event of a recession, markets are likely to be down when a potential employment gap is most likely.”

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