(November 26, 2002) Canadians are worried about the bear market but still plan to contribute at least as much as last year to their RRSPs, a poll released today suggests.
The Decima Research survey, conducted for Investors Group, found that 62% of investors are less enthusiastic about investing in the markets than they were 12 months ago. Forty-nine per cent say they will contribute the same amount to their RRSP as last year and 24% will contribute more. About 20% say they will contribute less.
“This indicates the total amount contributed to RRSPs should be approximately the same this tax year as last,” the survey says. Last week, Statistics Canada reported that a total of 6,241,050 taxfilers contributed just over $28.4 billion to their RRSPs in 2001. That was down slightly from the previous year, when Canadians contributed $29.3 billion.
“People still believe that RRSPs are a good vehicle for their retirement planning,” says Scott Penman of Investors Group Investment Management. “Considering the volatility, that’s good news. But while people are putting money into RRSPs, they may be putting it into the wrong asset class.”
Indeed, the poll reveals that the recent unstable markets have affected Canadians’ views on investment products. More than 20% of the 2,000 Canadians questioned by Decima in October said they were more likely to invest in low return fixed income vehicles, such as GICs, this year, and 13% said they would be less likely to invest in mutual funds.
Those findings suggest investors are reacting emotionally to market volatility, Penman says, which can result in lost opportunities. “When you look at money flows, you can see that people’s emotions are taking over rational thought,” he told Advisor.ca. “The last 36 months have been a laboratory for that, where we’ve seen record flows into growth-oriented and sector-specific funds, which were often redeemed right at the bottom.
“Unfortunately, this means investors are buying at market peaks just before a downturn and are hesitant to buy when the markets are down and the possibility for solid gains exists,” he adds.
All this points to the importance of a properly diversified financial plan, Penman says, which would have provided some insulation from the ups and downs of the last two years. “Clients are looking for some measured advice that’s rooted with a bit more of a discipline. It’s tough to be tactful with clients, but you have to question the collective wisdom of those money flows.”
For further evidence of the importance of staying the course, look no further than the pension fund industry, Penman says. “Much of the buying power now is coming from pension-oriented funds, which have a long-term plan and stick to it,” he says. “Those managers are very cautious but they know that there are opportunities to be taken advantage of. With the proper plan and balance, they’ll be able to meet their long-term goals.”
Decima conducted a similar poll in August. It found that although 58% of stock market investors reported a decline in the value of their holdings, only 22% planned to make changes to their portfolio.
Filed by Doug Watt, Advisor.ca, email@example.com.