Cost-of-living pressures prompt retreat by online investors
As online investors become increasingly cost-conscious, lack of sufficient disposable income and worries about the short-term state of the market are proving to be barriers to allocations in the short term, according to research.
Investment Trends’ 2023 1H Australian Online Investing Report, which surveyed over 22,000 investors and traders, found participation in online investing has fallen.
Around 1.28 million Australians placed trades on shares or exchange-traded funds (ETFs) in the 12 months to May 2023, down from 1.51 million six months ago.
The firm’s head of research, Irene Guiamatsia, noted: “The primary cause of the decline is a remarkable surge in dormancy (423,000 previously active investors did not participate during the reporting period), combined with lower inflows of new-to-market investors.”
Dormant investors said insufficient money to invest or insufficient disposable income are the leading factors for their inactivity.
“The challenging environment is in fact fertile ground for new opportunities where the onus is on providers to create solutions that bring down these perceived barriers to entry and encourage ongoing engagement,” said Guiamatsia.
“We believe education and trading tools that are tailored to – or customisable by – each individual investor can enable this.”
A second report from Stake, 2023 Stake Ambitious Investors Report, which surveyed around 1,500 non-retired investors across age groups, revealed 39 per cent of investors have cut down on their allocation to savings and investments.
When investors were asked what stops them from investing more, around 51 per cent mentioned increasing living costs, followed by worries about the short-term state of the market (24 per cent). Some 15 per cent said they are saving for a short- or medium-term goal like buying a home, largely observed in the 18–24 and 25–34 age cohort.
Young people and women are most affected by the cost-of-living pressure, while new graduates also feel pressure from the surge in HECS student debt.
Over half (51 per cent) have still made an investment in the past three months, mostly in Australian equities or index funds.
The report found investors are much more positive about long-term Australian market returns, with 64 per cent having a positive 10-year outlook and around half of investors saying they intend to hold their investment for 10 years.
“Given that the S&P/ASX 200 has delivered an average annual return of around 9 per cent over the past decade (dividends included), compared to annual nominal wage growth of less than 3 per cent, investors are placing more faith in the markets for wealth creation,” the report stated.
Matt Leibowitz, chief executive of Stake, said: “The pandemic may have been the catalyst for more Australians engaging with the markets, but it’s now clear that this was the start of a long-term shift. Given the high barriers to entry in the property market, and financial stability being less certain, ambitious Australians increasingly see investing as a way to protect their future.”