According to a recent survey by Ally Financial, it has been a difficult year for the stock market, with some consumers closing investment accounts due to inflation and volatility issues.
As investors brace for another significant Federal Reserve rate hike, inflation is still hovering around its 40-year high and the S&P 500 is down nearly 20% this year.
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Meanwhile, nearly 1 in 5 consumers have closed an investment, trading or brokerage account in the past 12 months, with the most closings, 21%, by millennials and Generation Z respondents, according to an Ally survey of 900 investors.
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Nearly 40% of those surveyed sold some or all of their investments because of inflation, the report found, and 31% sold assets for fear of losing money amid stock market volatility.
‘Selling out’ can lead to regret
Without a sufficient emergency fund, some investors may be able to sell assets to cover the increased cost of living, says Kyle Newell, a certified financial planner in Orlando, Florida and owner of Newell Wealth Management.
Others may have reacted emotionally due to stock market volatility, especially younger investors with less experience.
“The news can be scary at times, so it’s not uncommon for people to get nervous and get sold out,” Newell said.
But cashing out an investment account can lead to regrets.
Many millennials and Gen Zers who have invested in the past year have regrets, according to a recent study by MagnifyMoney. About 23% of Millennials and 15% of Generation Zers wish they had invested more, the survey found, and about 15% of each group regrets selling an investment.
High inflation, stock market volatility and geopolitical conflict have all happened before, Newell said, and those factors shouldn’t stop you from investing. And by selling when the stock market falls, you can “lock in losses” regardless of your long-term financial goals, he said.
‘Investments are instruments’
Of course, the decision to invest in a brokerage account can depend on one’s goals, explains Sean Michael Pearson, a CFP and associate vice president at Ameriprise Financial in Conshohocken, Pennsylvania.
“Investments are tools,” he said. “They work best when you decide what to do and then go shopping for your tools.”
If you’ve been saving and investing in pursuit of a goal, selling assets in a brokerage account isn’t necessarily a bad thing, Pearson said. Once you’re ready to fund that goal, it makes sense to sell.
If you’ve decided that a particular investment doesn’t fit your goals, a targeted sale can also make sense. Then you can find other assets that better suit your needs.