The recent strong performance of stock markets has boosted investor confidence according to a new TD survey of investor sentiment.
Strong market performance has convinced Canadians to increase the share of income they invest, but the attitudes are underpinning by emerging differences between generations. Or so suggest the findings contained in the annual TD Investor Insights Index.
"The headline story here is that Canadians are more confident. Canadians saw good results in their investments and that is feeding the optimism," said Bob Gorman, chief portfolio strategist at TD Wealth in an interview with WP.
More than half of investors contacted expected the value of their investments to increase over the next twelve months. This compares to 41% in 2013. Canadian investors now invest 14 per cent of their income, up from 12.6 per cent in 2013. One in five investors is planning to increase the proportion of income they invest if stock markets continue to improve. Twenty percent of Canadian investors plan to increase the proportion of their income they invest if stock markets continue to improve. Canadian investors hope to be investing 24% of their income in five years' time.
But beneath the headline numbers, "there are some other interesting storylines," says Gorman. It seems there are differences in attitudes among investors that split along generational lines. "This is a current that runs through the survey," he says.
According to the survey baby boomers enjoyed the biggest advances in their investment performance. Sixty-three percent said their investments improved over last year's. This is more than Gen Xers, only 54% of whom said their investments performed well. Generation Y respondents were the least likely to say their investment performed well, with just 44% saying so.
"This is not too surprising given the different investing goals each generation has. Gen X and Y are saving for homes and so have more liquid assets. Overall, short-term assets didn't do as well as the more long-term assets held by the boomers," said Gorman.
When asked about how they expect investments to do in coming years, “we see same pattern....looking forward, boomers, as a group, were the most likely to say they expect an improvement. Fewer Gen X and Gen Y clients said as much. We are starting to see a pattern here that is reasonably consistent,” said Gorman.
When it comes to the performance of the Canadian and US economies Gen Y was the least optimistic, a result, perhaps, of the relatively high levels of youth unemployment. "We can't make that conclusion strictly from the data. But it wouldn't be a huge leap to infer that. As well, prices for homes are daunting,” said Gorman.
Another generational split: Investors were asked whether they would increase their investments if markets continued to improve. It was the younger generations that were most likely to suggest they would increase their investments. Boomers were the least likely to say so. The conclusion: Older, experienced investors understand investment cycles. The boomers know that when confidence rises among the herd this is a sign of a late-cycle and that it's actually time to temper market expectations. "They have a lower risk tolerance," says Gorman. "Gen Y has a longer investment horizon."
That said, there is an air of caution among investors. Many Canadian investors say that, despite rising stock markets, living through the recent economic crisis has made them more cautious investors. One-third described their risk tolerance as low. For investors getting close to retirement age the proportion with a low risk tolerance jumps to 41 per cent."There certainly air of caution. Once burned, twice shy. Memories of credit crisis reflected in high liquidity levels," says Gorman. "Nonetheless, looking at what they are thinking about going forward, are willing to invest."
Over the coming week WP will feature more from the extensive survey and the interview with Gorman. On tap: Sticking to investment strategies, the relatively dim awareness among investors about real estate cycles and investor regrets.