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December 1, 2022
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eToro: Retail investors cut back on investments to cover household bills but sentiment is more bullish for Q4

  • Retail investor confidence globally has fallen, but 64% are still confident in their portfolios
  • Investors are more defensive, holding cash and energy stocks
  • Retail investors are prepared to ride out storm, 63% of global respondents hold investments for years or decades                                                                                                               

One in five (18%) retail investors are reducing the amount they invest to help cover the cost of rising household bills, but sentiment for Q4 appears more bullish, according to the latest ‘Retail Investor Beat’ from social investment network, eToro.

The study, a quarterly survey of 10,000 retail investors across 13 countries and 3 continents, found that two in five (41%) reduced the amount of money going into investments in the last three months. This is mirrored by a decline in retail investor confidence which has fallen by 17 points over the last twelve months, from 81% in Q3 2021 to 64% in Q3 this year.

Whilst one in five (18%) of all global retail investors are cutting back on investments to pay for rising household bills, 16% are doing so to build up emergency savings and 12% are holding onto cash, ready to invest when markets start to rebound.

When looking specifically at respondents in Romania, the number of investors who reduced the amount of money they invested over the last three months was 11% higher (52%) than the global average (41%). However, retail investor confidence in Romania remains high at 84% at the end of Q3, increasing by 1% over the last twelve months.

Amongst, Romanian investors, 30% attribute the decision to cut back on investments to wanting to build up their emergency savings, 23% are doing this to cover the cost of higher than usual household bills, while 21% are keeping cash in reserve for when markets start to rebound.

Despite worsening market conditions eating into confidence, those looking to reduce the amount they invest in Q4 is expected to ease to 31% with 69% either planning to invest the same amount of money or more over the next three months – suggesting retail investors are feeling less bearish about Q4. Romanian investors are slightly more cautious than the global average as 51% still expect to reduce the amount of money they invest in Q4.

“Retail investors are facing a cocktail of harsh market conditions, rising bills and more punishing mortgage rates so it’s little wonder that many have switched priorities,” comments Ben Laidler, Global Market Strategist at eToro.

 “Confidence has unsurprisingly taken a hit in the last year, yet it’s admirable that the majority remain positive, something which speaks to the resilience of this group. There may also be a silver lining to the drop in investor confidence as it can be an important contrarian indicator that often signals we are near a market bottom. If confidence levels are already very low then investors are less likely to be surprised by further bad news, and even a little bit of good news can go a very long way in driving renewed market interest.”

Inflation remains the biggest concern for retail investors for the second quarter in a row, with 24% citing it as the main risk to their portfolios, followed by the state of the global economy (22%). For Romanian retail investors the state of the global economy is the main concern (26%) followed by rising inflation (24%) and international conflict (17%).

Given these risks, many are pivoting to a more defensive stance, with those holding cash jumping from 26% to 46% in a year, while the number of investors holding energy stocks, traditionally a hedge against inflation, is set to rise 4% in the next three months (to 51%). The number of Romanians holding cash jumped from 40% to 61% over the last twelve months, and those holding energy stocks are expected to rise 13% in Q4. Meanwhile, those retail investors with money allocated to the financial services and industrial sectors (both typically cyclical and non-defensive) are set to drop from 65% to 57%, and 45% to 41% respectively. Those Romanians with money allocated to the financial services and discretionary consumer goods  (also both typically cyclical and non-defensive) are set to drop from 82% to 79%, and from 31% to 26% respectively.

The data also shows that the majority of retail investors globally have a long-term mindset, with two thirds (63%) looking to hold an individual investment for a time frame of years or decades, whilst just 3% identify as day traders. Supporting this, a third of global respondents highlight securing long term financial security as their main goal for investing. This is concurrent among Romanian investors with 60% expecting to hold investments for either years or decades and only 3% identifying as day traders. The number one goal for investing among Romanian respondents was to retire early (44%), followed by outperforming savings accounts (40%), and the ability to help fund retirement alongside a pension (39%).

“Maintaining a long term perspective gives you a huge advantage in volatile markets and could give this group an edge over institutional investors. It is also a very different picture to the one often painted of retail investors, as FOMO-driven speculators, or dumb retail money buying high and selling low.

 “The explosion of retail investors in 2021 transformed the status of this ever-growing section of the market. Yet misperceptions persist of retail investors as short term day traders who don’t understand the markets. This clearly isn’t the case, with most holding onto assets for years, whilst also responding to market conditions when necessary by adjusting their portfolios,” adds Bogdan Maioreanu, eToro analyst for Romania (photo).

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The Q3 2022 Retail Investor Beat was based on a survey of 10,000 retail investors across 13 countries and 3 continents. The following countries had 1,000 respondents: UK, US, Germany, France, Australia, Italy and Spain. The following countries had 500 respondents: Netherlands, Denmark, Norway, Poland, Romania and the Czech Republic.

The survey was conducted from September 16 to 28 2022 and carried out by research company Appinio. Prior to Q2, 2022, previous waves were conducted quarterly in conjunction with Opinium.

Retail investors were defined as self-directed or advised and had to hold at least one investment product including shares, bonds, funds, investment ISAs or equivalent. They did not need to be eToro users.

 

About eToro

 

eToro is a social investment network that empowers people to grow their knowledge and wealth as part of a global community of investors. eToro was founded in 2007 with the vision of opening up the global markets so that everyone can trade and invest in a simple and transparent way. Today, eToro is a global community of more than 30 million registered users who share their investment strategies; and anyone can follow the approaches of those who have been the most successful. Due to the simplicity of the platform users can easily buy, hold and sell assets, monitor their portfolio in real time, and transact whenever they want.

 

 

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