ComparisonAdviser Study Reveals How Investors Would React to a 25% Market Drop

REDMOND, Wash., April 1, 2024 (Newswire.com) - In its latest study, ComparisonAdviser investigated how investors claimed they would react to a hypothetical market drop of 25% over one month. Specifically, the intention was to understand how one’s risk tolerance and investing behavior changes based on their age and time horizon to reach their goals. Click this link to access the article: https://comparisonadviser.com/news-and-studies/investor-decision-study/.

The actions one may take following an economic decline of 25% may vary, ranging from holding their positions to changing their strategy altogether. In the study, ComparisonAdviser examined data from just over 32,000 survey participants of varying age groups (more information on the methodology is available in the study). Respondents had the option to select one of four reactions to a theoretical market drop:

• Hold their investments in place.
• Take the opportunity to invest more.
• Shift to a more conservative plan.
• Unsure.

Overall, the results illustrated that almost 31% of people of all ages believed they would hold steady during a sharp downturn and wait for their investments to recover. Additionally, about 18% of investors said they would use the reduced prices as a signal to add more securities to their portfolios. Finally, nearly 10% of respondents said they would shift to a more conservative strategy.

The study also showed that age impacted the decisions respondents said they would make after a market drop. Particularly, those in younger age groups felt more comfortable with any of the options and, thus, showed a higher risk tolerance. Conversely, older investors aged 40 to 60+ were more conservative and were more likely to hold their investments or move to safer strategies.

Another focus of the study is analyzing the influence of one’s time until retirement — ranging from 11+ years to less than two — on their behavior during and after downturns. While most would hold, the data exhibited that those closer to retiring were not as likely to actively invest during a drop or drastically change their strategy. According to the study’s author Brandon Canonica, “This may be due to them feeling the need to preserve the progress they’ve already made or to avoid making any hasty decisions.”

Finally, the study concluded that an investor’s risk tolerance, informed by their age and time horizon, played an integral role in how people believe they’d react to a significant market drop. As mentioned, those in younger age groups are further from important goals, such as retirement, and thus may be comfortable taking on more risk. On the other hand, as people age, they may shy away from as much peril to preserve their progress.

Source: ComparisonAdviser