BUSINESS

Investor Risk Survey: Canadians Often Don't React To Major Losses

02/04/2014 01:23 EST | Updated 02/05/2014 10:59 EST
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The deadline for making RRSP contributions for the 2013 tax year is coming up quickly — March 3, 2014. And just in time comes new research to warn you of what you may be doing wrong with your investments.

According to a new report on investor risk and behaviour, Canadians may not be entirely aware of what's in their investment portfolio, and a surprising number are pretty relaxed about big losses.

The survey found nearly a quarter of people who identify themselves as “low-risk” investors actually own some “medium- to very high-risk” products, while seven in 10 “high-risk” investors hold all sorts of low risk investments.

The study, carried out for the Ontario Securities Commission’s Investor Education Fund (IEF), found one in three investors have suffered “major losses” — defined as a 20 per cent decrease in value — in the space of a year. And of those people, slightly more than half — 51 per cent — said they took no action and stayed the course on their investments.

Among other findings is that many Canadians reaching retirement age are trying to earn day-to-day income off investments, and are making risky bets doing it. Four in 10 people trying to live off investments are 55 and over.

“We can see that not earning enough income sometimes pushes the individuals in this group to take more risk than is typical for their age,” the survey says.

One of the points of publishing the survey is to draw attention to the IEF’s Get Smarter About Money website, which features comprehensive advice on finances and investment.

“We want to stimulate Canadians to think about money, emotion and risk-taking,” IEF president Tom Hamza said in a statement. “Canadian investors should have more self-awareness about what influences sound decision-making.”

Canadians generally see themselves as cool-headed investors, with 60 per cent saying they make investment decisions based on cold calculation. Twenty-three per cent say they make decisions based on a mix of rationality and “gut feeling,” and only 17 per cent say they go on gut feeling alone.

One in 10 survey respondents described themselves as “high-risk” investors, while six in 10 said they were medium-risk and three out of 10 called themselves low-risk investors.

The survey found low-risk products are the most likely to be an investor’s “worst-performing product.” That likely reflects the large run-up in stock prices in recent years, which has made low-risk investments like government bonds less profitable.

Most Canadians stick to traditional investments like mutual funds and GICs, while only six per cent own “advanced investments” like options, forwards and hedge funds, the report said.

The report was was based on a survey of 2,002 people who filled out 20-minute online questionnaires. It was carried out in September, 2013.

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