Canadians investing regularly, despite shaky markets

Despite the unpredictable markets, Canadians still think that investing on a regular basis is the way to go. A new Scotiabank survey says about 80% of Canucks feel it’s either very or fairly important to make regular contributions to their investments.

The survey reveals that 76% of investors over the age of 18 make at least annual contributions to RSPs and other investments, while 41% do this on a monthly basis.

“It’s really surprising that it is that high,” says John Kellett, senior advisor, mutual funds business development, at Scotiabank. “By doing it on a regular basis, you’re getting a much better bang for your buck and you avoid market timing. That’s really important.”

David McGruer, a CFP with Dundee Private Investors, isn’t shocked by these numbers. He encourages his clients to make regular monthly contributions. “It’s a behaviour thing,” he explains. “If every month is the same, they’ll never notice a difference. It’s easier putting in $500 instead of paying $6,000 at the end of the year.”

Why more than 41% of people aren’t contributing on a monthly basis is curious, he adds. “I’m not sure why it’s not 100%. Regular contributions are not important? Who could possibly say that?”

The survey reveals that while market volatility is a concern for 35% of Canadians, it’s not affecting their investment regime. The rising Canadian dollar also hasn’t had much of an impact on where people are putting their money. Nearly 60% of those surveyed responded that the Canadian dollar had no impact on their investment portfolio, while 28% claimed that the rising loonie actually had a positive impact on their investments.

That last statistic shocked Kellett. “On the face of it, it is a surprising conclusion,” he says. “But it might be psychological. They could be thinking that their RSP will buy more stuff in the U.S., and a lot of Canadians use their RRSP to go south. Maybe they feel they can get a lot more.”

“Probably most people don’t understand [how the dollar works],” says McGruer, who was also surprised at the number of people who were thankful for the higher dollar.

“They could be looking at the Canadian stock market and be thinking it has benefited from a high dollar, but, rather, the high dollar is because resources have done so well,” he says. “It’s cause-and-effect confusion.”

He says most of his clients are in global funds, and they’ve been “feeling the pain” of the appreciating loonie.

McGruer’s clients might be part of the 14% of those surveyed who reported that the higher buck has had a negative impact on their investments. Of that number, 63% haven’t made any changes to their portfolios.

Interestingly, only 17% of Canadian investors know about the abolition of the foreign content rule, which could be another explanation as to why so many people had no qualms over the rising dollar.

“In a way, it’s lucky that more people don’t know about the foreign content rules because with currency appreciation, that would have had a serious impact over the past couple years,” says Kellett. “The fact is, people haven’t maximized their ability to invest outside of Canada, and that probably worked to their advantage.”

Investors’ lack of reaction to the market woes means one thing, says Kellett: Canadians are thinking long-term. This is proven by the 68% of those surveyed who said retirement is the main reason why they’re saving. Building an emergency fund was next, with 38%, followed by travel/vacation, with 37%.

“This means Canadian investors really do look at the future. And the results are even after a pretty rocky last six months,” explains Kellett.

He says this long-term thinking extends into what sectors people would like to invest in. Technology, energy and health care — all longer term areas of growth — top the list.

At the same time, investors aren’t just putting all their cash into RRSPs. On average Canadians contribute $2,035 to their savings plans but put nearly $2,700 toward other investments.

“It’s good to see that Canadians aren’t putting all of their eggs in one basket,” says Kellett. “An RRSP is intended as a fund for retirement; however, people also need to take into account their present needs and future goals and save accordingly.”

McGruer’s not so sure that the long-term view of investing has taken hold. He says that the behavioural nature of investing often causes people to return to the same type of panic selling every time the going gets tough.

“A few years of peace in between is not going to help keep people around long-term,” he says. “Next time, like right now, when there’s some big downturn in the markets, it still catches investors by surprise.”

It’s up to the advisor to help a client get over fears of a market downturn. Kellett says advisors are trying harder to explain the important issues behind investing, though more investors are working on their own time to figure out the industry. “I think all in all, it’s been quite a mature response,” he says.

McGruer’s view is that advisors should prepare their clients ahead of time. “Warn them that there will be times like this, and when that time comes here’s what I’m going to tell you. [Advisors should] have done a dry-run ahead of time. It also is part of preparing them that after a good year, this is not going to continue, so they can’t get too excited today.”

While no one’s excited these days, things could get worse in 2008 and investors’ resolve could waver. Kellett expects that investors might be quicker to sell if this year is as volatile as the past six months. However, he admits that Canadians could end up surprising everyone and sticking out a longer period of uncertainty.

“I wouldn’t try to pre-guess it,” he says. “I’ve been surprised by some of these findings. If we had a whole year of really bad markets, I suspect things will change in these numbers, but I’m quite impressed at how pragmatic Canadians have been.”

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Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(01/17/08)

Bryan Borzykowski