Stock market needs to fall significantly for investors to consider changes

Written by Oliver Wade
21/01/2019

Just over two thirds (67%) of drawdown investors who said they would be concerned by stock market fluctuations, claimed that markets would need to fall by 7.5% on average in a single day to spook investors enough to review and move their money, new research has found.

The study conducted by Canada Life suggested that drawdown investors tend to be “risk tolerant”, as a third of them are prepared to weather the storm and are reluctant to make changes to their portfolio regardless of how much the stock market fell in one day.

Canada Life emphasised that it would effectively take a “mini-market crash” of 7.5% to consider reviewing their investment strategies and amend their asset allocations accordingly. In the event of a significant market fall, 59% of investors would shift their money around a mix of asset classes, while just over one in five (21%) would transfer their entire savings into cash in the event that the stock market fell significantly.

In the event of market falls, 25 % of DIY investors are more likely to see cash as a safe haven, and are less likely to move to a mix of asset classes, which is what 50% of DIY investors would do. However, of those that consult an adviser, just 18% would stick to cash while 66% would switch asset classes.

Commenting, Canada Life technical director Andrew Tully said: “The majority of drawdown investors show they will remain remarkably resilient in times of stock market volatility and global economic uncertainty. Far from knee-jerk reactions to the latest breaking macroeconomic news, our research suggests most people using drawdown to fund their retirements are sensibly taking a longer term view.

“Dealing with the prevailing headwinds is all part of the game when you continue to invest into retirement. It is key though to have the right diversified investment strategy and ensure your essential expenditure is covered through a regular income. Only then will you will able to flex and change your investment approach as the economic environment dictates.

“As people move into retirement, it can become increasingly tempting to adopt a risk-averse stance and reduce exposure to stock markets. With global markets fairly volatile and continuing Brexit uncertainty, consumers will likely see cash as the safe haven in an increasingly blustery storm. But cash also carries its own risks, that being inflation and historical low interest rates, so settling for such poor yields exposes a pension pot in real terms.”

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