New research reveals that many investors are concerned about the rising cost of living, particularly with regard to inflation. According to a leading investment platform, one in four of these concerned investors are considering changing their savings or retirement plans.
So what else did the data reveal? And is it a wise move to rethink your investment plans? Let’s explore.
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What did the data reveal about investor attitudes to the cost of living crisis?
According to Hargreaves Lansdown, one in every four of its clients are worried about rising inflation enough to consider changing their savings or retirement plans. The investment platform’s data also revealed that one in every seven have decided to build up more savings to help keep up with inflation.
This finding suggests many investors don’t have to sell investments to cope with rising inflation. As Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, explains: “Inflation is more likely to make investors put more money away for the future than it is to get them to sell up, or cut contributions: one in seven say they’ll boost savings. This is a very sensible option.
“When you’re working age, you need three to six months’ worth of essential spending in an emergency savings account, and in retirement, you should have one to three years’ worth. When the cost of your essential spending rises, your emergency fund will need to rise with it.”
Coles also highlights how many investors are on higher incomes, which is why many are able to put away more money during the cost of living crisis. She explains: “The fact that inflation encourages investors to put more away, rather than plunder their investments, owes much to the fact that many investors are on higher incomes.”
What else did the data reveal?
The most common way investors are dealing with the cost of living crisis is to simply save more. However, it’s important to note that some investors are taking a different approach.
According to Hargreaves Lansdown, 6% of its clients say they will deal with inflation by selling their shares. Meanwhile, 4% said they plan to sell funds and a further 4% said they’ll withdraw cash from an ISA. Perhaps surprisingly, 3% of investors plan to reduce their pension contributions.
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Should you rethink your investment plans amid the cost of living crisis?
While selling shares or reducing pension contributions isn’t the approach favoured by the majority of investors, if you are planning to take similar measures to cope with the cost of living crisis, you may wish to take another look at your portfolio.
That’s because selling shares due to the economic climate may indicate your portfolio does not align with your risk tolerance. The Motley Fool’s risk tolerance quiz can help you determine your investing style.
More generally, whether selling shares or cutting back on your pension is the right thing for you will depend on a number of variables. For example, your personal circumstances and your tolerance for risk are two very big factors.
If you do decide to cut back your investments, consider when you can increase your contributions in future. Sarah Coles explains why this is important: “If you do cut back on saving for the future when money is tight, it’s worth considering when you’ll be able to bump contributions back up.
“A few months away from a pension isn’t going to make a dramatic difference to your retirement, but if it drags on and you don’t have a plan for beefing payments up again when your finances ease, then you could end up with a horrible surprise in retirement.”
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