1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost of living. But is this a wise idea?

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New research reveals that the current cost of living crisis is forcing many to cut back on their investment contributions.

Let’s take a closer look at what the findings tell us about current investing habits.


What does the research show about investors and the rising cost of living?

According to the survey by Interactive Investor, a number of investors are cutting back on regular investment contributions in order to tackle the cost of living crisis. 

24% of respondents replied ‘yes’ when asked whether they have stopped contributing to any investments or savings because of the rising cost of living.

This tells us that many are scaling back on their investments simply to cope with rising bills. Dubbed ‘Awful April’, millions of people are facing higher National Insurance, energy, mobile phone and broadband contracts this month.

What else does the research reveal?

The survey also reveals that stocks and shares ISAs were the most common investment product that investors cut back on. Of those responding to the survey, 8.5% say they’d scaled back on payments to their tax-efficient investing account.

Meanwhile, 5% have stopped contributing to their pension, 5% have cut regular payments to their savings accounts and 4.5% have halted contributions to a general investing account. Interestingly, only 1% say they’ve stopped contributing to their children’s junior ISA

So, while one in four are cutting back, it’s still a fact that many continue to make regular contributions. This is something that Becky O’Connor, head of pensions and savings at Interactive Investor, describes as ‘heartening’. She explains: “It’s heartening that most people appear to be persisting with their long-term investments despite the soaring cost of living.

“However almost one in four have already made some cuts to their usual ISA, pension or investment account contributions, which is a significant proportion. This may be an indicator of how bad things have already become, as well as how high people expect living costs to go over the coming months.”

O’Connor goes on to explain that it makes sense that some investors are having to reduce their contributions. She explains: “It’s understandable given the current outlook for household budgets – as well as the knowledge that things will most likely get worse before they get better – that people are looking to make cutbacks wherever they can.”


Should you cut back on investments?

Cutting back on investing contributions isn’t something to take lightly. That’s because taking such action could put a spanner in any financial goals or dreams of retiring early. Instead, a better option is to try to cut back on non-essential spending, if at all possible. 

Thinking very carefully before cutting back on investments is a sentiment echoed by Interactive Investor’s Becky O’Connor. She explains: “It’s important not to cancel long-term investments on a whim and to look at other possible areas to roll back on first. Future financial security is important and in cutting back on things like pension contributions now, people may be storing up difficulties for the future.”

Of course, not everyone will be in the fortunate position to be able to cut back on frivolous spending. After all, even the Bank of England has suggested the UK population facing the biggest squeeze on living standards since the 1970s. So, if you feel the need to cut back on contributions, it’s certainly nothing to be ashamed of.

However, cutting back on contributors may not even be enough for some. If that includes you, then you may be considering selling shares. Again, this action shouldn’t be done on a whim. However, if it is something you wish to consider, take a look at our recent article that explains how to sell shares.

For more investing need-to-knows, take a look at The Motley Fool’s investing basics guide.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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