Investment platform eToro’s latest quarterly temperature check of 10,000 investors suggests just one in 20 has sold out while 95% of its customers, many of whom tend to be highly engaged investors, have held steady with some even investing further in an attempt to ‘buy the dip’.

Stock markets have suffered considerable volatility in 2022, with Russia’s invasion of Ukraine wiping £77bn off the FTSE 100 in just a day – the biggest one day fall since June 2020 in the midst of the pandemic.

Energy shortages, trade embargoes and severely disrupted international supply chains have exacerbated post-pandemic economic woes, sending inflation soaring over 9% in the UK and fuelling fears the country is set for recession.

Interactive Investor’s latest private investor performance index to 30 June 2022 showed private investors using its platform are down 11% in the first half of 2022, while the Investment Association Mixed Investment 40-85% Shares sector is down 10.8%

The losses echo the falls in the first half of 2020, when the average II customer was down 8.1%, before finishing the year in positive territory.

Opportunity to buy

Yet, there is evidence UK retail investors have taken stock market falls as an opportunity to buy.

eToro’s investor base have been piling into commodities with the number of customers holding the asset class up 40% since the end of March this year.

AJ Bell’s head of investment analysis, Laith Khalaf, said he has also seen surprising confidence among British investors over the past six months.

“The most notable thing about DIY investors’ behaviour in the last six months is their readiness to buy the market dip using tracker funds,” he said.

“Investors piled into passive funds focusing on the US and Global stockmarkets, areas which have seen some of the sharpest falls in 2022.

“Eight of the 10 most popular funds bought on the AJ Bell Youinvest platform in the first half of the year are passive offerings.”

eToro’s study suggested one in three UK investors plans to increase the amount they invest over the coming year in an attempt to hedge against inflation – their number one concern.

Time in the market

Ben Laidler, eToro’s global market strategist, said: “The golden rule of investing is that time in the markets beats timing the markets so it’s encouraging to see investors, particularly those who are relatively new to investing, refraining from making any knee jerk decisions when things became choppy.”

Analysis carried out this week by wealth manager Brewin Dolphin revealed just how stark a difference trying to time the market by buying low and selling high would have made to the value of £10,000 invested in the FTSE All Share on 1 May 1989.

“If you kept your £10,000 invested throughout until April this year it would have grown to £140,287 assuming dividends were reinvested and before fees,” said Rob Burgeman, investment manager at the wealth manager.

“However, if you tried to buy low, sell high and missed the market’s 30 best days, your investment would have increased to just £33,872.”

Burgeman warned: “In an ideal world, you would buy the dips; in reality, there is no way of really knowing whether the stock market has reached rock bottom and when the recovery will occur. The practice buy low, sell high is something that only professional investors should attempt.

“Investors who keep their money out of the market are also at the mercy of inflation, which recently hit a 40-year high of 9.1% With interest rates stubbornly low, money left in a cash savings account could lose its real value as inflation erodes its purchasing power. “

Rather than trying to time the market, the consensus is it’s a much better tactic is to stay focused on your long-term goals and the quality of your investments.

“Although recessions are unnerving, it remains true that investing offers the potential for greater returns than cash over the long-term,” Burgeman added.

How to invest in a recession

The best way to mitigate the impact of stock market falls is to spread your money across a range of asset classes and sectors.

Different asset classes and sectors tend to perform differently to one another in a range of market conditions, which can help to smooth portfolio performance over the long-term.

eToro’s customer habits suggest investors largely turned to defensive sectors this year, with energy stock purchases up 18%, utilities 16% up and ‘the new defensives’ tech stock purchases up 16%.

Richard Hunter, head of markets at II, said private investors continue to search for income, and dividend-paying blue-chip names such as Lloyds, Shell, and BP remain popular.

“Many investors are choosing to stay away from active strategies in favour of passives,” Hunter said.

“The Vanguard LifeStrategy range featured in the top 10 most held investments by value across the board, bar for customers over the age of 65. Active and passive strategies are the ultimate ‘pick and mix’ and there’s room for both in a portfolio.”