Are Investors Really This Clueless?

Franklin Templeton recently released its 2013 Global Investor Sentiment Survey, which polled 9,518 people from 19 countries. The survey found that 81% of Canadian investors “expressed optimism about reaching their financial goals.” However, many of the other results suggest this optimism may be misplaced.

I want to stress this wasn’t a random survey conducted on street corners, where you would expect some respondents to be oblivious teenagers or people without money to invest. All of them were at least 25 years old and owned a significant amount of stocks, bonds or mutual funds, ensuring they had “a knowledge base from which to answer the survey questions.”

Here’s the first head-slapper: 52% of Canadians in the survey believed the stock market declined or was flat in 2012. In fact, the S&P/TSX Composite was up 7.2% last year. That’s a remarkable lack of awareness that shows how many investors still refuse to believe we’ve been enjoying a bull market for more than four years. Even more amazing, almost a third of US investors also said the market was flat or down in 2012, despite a rip-roaring 16% return for the S&P 500.

Given these misperceptions, it should come as little surprise that many Canadians have soured on stocks. More than half (56%) reported they can meet their investment goals without equities in their portfolio. That swelled to more two-thirds (68%) for those aged 25 to 34, meaning younger Canadians are the most conservative of all age groups. This younger crowd also seems the most pessimistic: only 13% said they expected stocks to outperform other asset classes in 2013, and 59% said they were planning to make their investments more conservative this year.

If this survey is truly representative of Canadian investors, it’s a worrisome combination of overconfidence, ignorance and fear.  There’s nothing wrong with being conservative: indeed, if you’re able to meet your financial goals without taking equity risk, you should probably do so. But that choice needs to be based on accurate information, and if you think stocks went down last year you shouldn’t be making your own financial decisions. If you’re in your 30s and expect to build a retirement nest egg with no equities, you’d better do the math assuming a 2% or 3% return on fixed income investments for the foreseeable future. You might learn you’ll need to save 20% or 25% of your income.

Meet Dan Solin in Ottawa

PWL Capital’s Ottawa office is playing host to financial author Dan Solin on Tuesday, May 28, and they have invited up to five Canadian Couch Potato readers to attend. Solin is the author of The Smartest Portfolio You’ll Ever Own (see my review here) and several other books advocating passive investing. His lunch-hour talk is entitled “Seeking Alpha and Getting Clobbered.”

[Update: This event is now full.]