Experts say to stop thinking of investing as a transaction4774344sean/Getty Images/iStockphoto
For many Canadians, investing is less about a long-term financial plan and more about fulfilling a particular need at a particular time.
"Investing is transactional for many people," says Karrie Van Belle, managing director at BlackRock Asset Management Canada Limited. Whether it's popping into the bank before tax time to make a registered retirement savings plan (RRSP) deposit or figuring out what to do with a sudden inheritance – which 32 per cent of Canadians stated would prompt them to begin investing, greater than any other life event – there's frequently no long-term strategy in place.
Investing is supposed to be a life decision, not a quick bet, but the latest BlackRock Global Investor Pulse Survey suggests that many Canadians think otherwise.
"What our survey demonstrates is that many Canadians today only think about investing when they have some cash on hand to invest," says Ms. Van Belle. "And while it makes sense that investing becomes top-of-mind when you have something to invest, the need to be thinking about your long-term retirement plans, and investing as a part of that, is important at every stage of your life."
The 2015 Investor Pulse survey – which asked 2,000 Canadians between 25-74 their thoughts on their financial futures – found that approximately half of Canadians (51 per cent) think investing is equivalent to gambling. Additionally, 51 per cent described themselves as focused on shorter term goals rather than longer term goals (10+ years in the future). And while close to half said they are contributing to RRSPs, only 44 per cent felt that "investing is for people like me."
It's an emotional response to what should really be a rational decision, says Ms. Van Belle. There are various milestones in life when it makes sense to think about your money and having a financial plan – when getting married, when kids are on the way, when buying a home, when changing careers. These life moments can be used to start a longer-term view of your financial plan and gaining the understanding of the investing options available to you, she says.
And for those Canadians who feel like investing is too risky, Ms. Van Belle points out that it might be a greater risk to not invest at all.
"Holding on to cash might be making you feel safe and secure, but in the long-term, you're losing out," says Ms. Van Belle. "You're trading one risk for another – while you may feel more secure in cash today, you are potentially trading off for a longer-term risk by not having your cash invested."
Another finding from the Investor Pulse survey is that many Canadians don't have confidence in their financial knowledge.
Just 35 per cent of respondents agreed with the statement, "I am knowledgeable about investing." And only 44 per cent said, "I feel comfortable making my own investment decisions."
All of this suggests the value of seeking financial advice, whether in the form of education or more formal professional advice, early and developing a long-term financial plan.
"Remember, if it were easy, no one would be writing about it," says Sandra Foster, a Toronto-based financial writer and consultant who is working on a new book on estate planning.
Ms. Foster says many Canadians mix up investing not only with gambling, but with those investors who trade actively.
"You need to know if you are an investor or a trader," she says. "If you are in it for the long term but do need to trade, limit yourself." Ms. Foster suggests that a reasonable limit for a risk-averse investor should be trading 5 to 10 per cent of his or her investments, per year.
Ms. Foster says younger investors should consider putting money into tax-free savings accounts (TFSAs). They're flexible and can be easily replenished for those who need money for expenses like marriage or down payments. For those looking toward retirement, an RRSP makes sense.
Setting a financial plan is not a one-time, transactional experience. A financial plan needs to be adjustable, says Ms. Van Belle, changing as your life evolves.
Even if you're the kind of person who is scared of investing, seeking advice and developing a plan means "you'll be able, at least, to know you have the option," she says.