Investors are responding to recession fears and inflation by holding onto cash, according to the UBS Investor Sentiment survey. (UBS)

Investors hold cash as optimism dips

Optimism for the US economy has dropped for both the long- and short-term outlooks with 39% of survey respondents feeling optimistic about the next 12 months (-19 percentage points vs. the previous survey) and 37% feeling optimistic about the stock market in the next six months (-21 percentage points vs. the previous survey).


Most investors (82%) see recession fears and inflation as barriers to investing, while 70% believe that market volatility is on the rise. And, they are responding by holding onto their cash, with 41% delaying big purchases for the short-term and an average of 21% of investor assets being held in cash.


To a lesser extent, they fear making bad investment (67%) decisions while market volatility persists or they just aren’t sure what to invest in (65%).


Investors often try to reconcile a constructive long-term view with a more challenging short-term outlook by simply waiting, says CIO. But, this approach entails its own risks. The savings from waiting tend to be limited, but the opportunity costs can be much greater.


CIO’s report Reasons to invest now, despite challenges shows that, historically, waiting can be riskier than investing right away. Since 1960, a strategy that waited for a 10% correction before buying the S&P 500, and then sold at a new all-time high, would have underperformed a buy-and-hold strategy by 80 times. Over the same time period, a strategy of investing immediately after a 20% drop would have delivered an average one-year return of 15%. An investor staying in cash for a year after a 20% drop would have earned 2%. This significant gap in performance also widens over time with the effect of compounding.


Younger investors are more like to take a proactive approach to managing their portfolios. According to the Investor Sentiment survey, 38% of investors who are millennials and younger see the market decline as an opportunity to increase their investments.


The Midterms and the economy

As the Midterm Elections approach, top-of-mind concerns for investors are the economy (85%), healthcare (74%), and taxes (72%). They’re also worried about how inflation will affect their retirement savings (48%) as well as the value of what they’ll pass on to future generations (38%). Investors will be thinking about these concerns as they head to the polls in November. They favor the Republican Party for the economy (56%) and taxes (58%) but prefer Democrats for healthcare (52%) and social security (54%).


Business owners remain optimistic

Most business owners (75%) are optimistic, with continued plans to hire (40%) or keep their workforces the same (47%). They also plan to continue to invest in their businesses: 39% will invest more, while 49% will keep their investments the same.


They do have concerns, however. Many (66%) are feeling pressure from rising material costs and wage inflation. They’re responding by raising prices. Half say they have raised their prices in the past six months, while 48% expect to do so within the next six months.


View the infographic to explore more findings from the UBS Investor Sentiment US 2Q 202 survey, 3 August 2022.


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Main contributor: Kerry Breen


About the survey: UBS surveyed 899 investors and 498 business owners in the US with at least $1M in investable assets (for investors) or at least $1M in annual revenue and at least one employee other than themselves (for business owners), from July 5 – 19, 2022. For the May results, UBS surveyed 900 investors and 500 business owners in the US, from April 5 – 18, 2022.


This article is for informational and educational purposes only and should not be relied upon as investment advice or the basis for making any investment decisions. The views and opinions expressed may not be those of UBS Financial Services Inc. UBS Financial Services Inc. does not verify and does not guarantee the accuracy or completeness of the information presented.


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Review code: IS2204330