How financial knowledge affects your client’s behaviour

Successfully getting clients to part with their cash and invest in the market might depend on their level of financial savvy.

A Schroders study finds that less knowledgeable investors tend to hold more cash in their portfolios. Self-identified beginner investors allocate 32% of their portfolios to cash compared to 21% for self-identified experienced investors. Overall, only 9% of beginner investors say their portfolios are well diversified compared to more than one-third of experienced investors (34%).

On a positive note, investors in the Americas had the smallest exposures to cash, at 20% of investments. (Asian investors had the highest allocation to cash, at 29% of their portfolios.)

The survey also finds support for thematic funds, especially among more experienced investors.

For example, 70% of experienced Canadian investors say they’re interested in healthcare funds, compared to 61% of Canadian investors overall. Healthcare was also the most popular theme among global investors.

Experienced investors were also more likely to be patient in seeking returns, saying they’re prepared to hold on to a thematic investment for 1.86 years, compared to 1.7 years for the average Canadian investor.

These investors also take more risks, putting 23% of their portfolios in high-risk investments versus 9% for beginner investors.

And, when the market drops, knowledgeable investors are more likely to seize the opportunity to invest. More than one-quarter (26%) say they invest more in the stock market–related investments when the market drops, compared with 7% of beginner investors.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.