TORONTO, Feb. 13, 2013 /CNW/ - When the pullback of the stock markets happened in 2008, many investors let emotions overtake their investment plans. Behavioural economics sheds light on why negative events seem to have a profound and lasting ability to derail investors' longstanding, rational plans.
Franklin Templeton's Time to Take StockTM examines the current situation facing investors and the human behaviours that impact investment decisions. It explores important facts investors may be missing regarding more recent positive market developments around the world, and provides straightforward strategies to help investors reposition their portfolios with an appropriate allocation to Canadian and global equities and fixed income.
According to Franklin Templeton's recent Canada investor survey hosted on the Angus Reid Forum, a third (34 per cent) of Canadian investors acknowledge that they take an emotional approach to investing and another quarter (26 per cent) are unsure of whether they do or not.
"Canadians are still looking at equities through 'bear market glasses'. The dramatic market drop of 2008 continues to stand out in investors' minds, even as the market has climbed back up," said Ronice Barlow, head of strategic planning & business development - Canada, Franklin Templeton Investments Corp. "Many investors who instinctually moved money out of equities into traditionally 'safe' investments a few years ago are finding that many of these strategies have been offering a marginal or negative real return because interest rates are so low."
In fact, when Canadian investors were asked if they currently view fixed income assets (including bonds and bond mutual funds) as a "safe haven" for their money, 61 per cent indicated that they do, according to the January 2013 Canada investor survey. Also, over a third (35 per cent) believe that fixed income assets offer the best returns in today's markets. These views on fixed income may be keeping many investors on the equity market sidelines, and further from their long-term financial goals, in a period where the S&P/TSX Composite index has risen about 68 per cent since the market bottom in March 2009.*
Time to Take Stock explores three behavioural finance concepts as a window into why investors hold the beliefs and make the decisions they do:
- Availability Bias - Decision-making is greatly influenced by what is personally most relevant, recent or dramatic. For investors, this can mean that the unprecedented events of the 2008 financial crisis have left a stronger impression than the 68 per cent gain in the S&P/TSX Composite index since the market bottom.*
- Loss Aversion - The pain of loss is generally much stronger than the reward felt from a gain. The desire to avoid market losses has driven many investors to move their money out of stocks into low-yielding cash equivalents such as money market instruments or Guaranteed Investment Certificates (GICs).
- Herding - An innate tendency to follow the crowd makes it easy for investors to get caught up in "what everyone else is doing." This can cause investors to lose sight of their long-term goals and pull their money out of equities at the wrong time or sit on the sidelines in cash while the market rises. More than half of Canadians surveyed (59 per cent) report that they don't pay attention to what others are doing when investing, yet the exodus from the equity markets paints a different picture.
"We encourage investors to meet with their financial advisor to figure out their long-term objectives and risk tolerance. An advisor can help them remove the emotion from their investment decisions and position their portfolio to meet their future goals," added Ms. Barlow.
Time to Take StockTM is the latest in Franklin Templeton's series of thought leadership pieces that demonstrates why equities are a critical component for investors' long-term success. Investors can find more information on franklintempleton.ca.
About Franklin Templeton Investments
Franklin Resources, Inc. (NYSE: BEN) is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 investment teams. The San Mateo, CA-based company has more than 65 years of investment experience and over US$809 billion (over C$807 billion) in assets under management as of January 31, 2013.
Franklin Templeton Investments Corp. has more than 600 employees providing services to more than one million unitholder accounts and more than 200 pension funds, foundations and other institutional investors. Additional information on Franklin Templeton Investments Corp. can be found at www.franklintempleton.ca
About the survey
On January 15 and 16, 2013, an online survey was conducted among 946 randomly selected Canadian adults who currently invest in stocks, bonds or mutual funds, or have done so in the past five years, and who are Angus Reid Forum panelists. The margin of error which measures sampling variability is +/- 3.05%, or 19 times out of 20. The results have been statistically weighted according to the most current education, age, gender and region census data. Discrepancies in or between totals are due to rounding.
* Source: FactSet, TSX. © 2013 FactSet Research Systems Inc. All Rights Reserved. The information contained herein: (1) is proprietary to FactSet Research Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Source: TSX © Copyright 2013 TSX, Inc. All Rights Reserved.
SOURCE: Franklin Templeton Investments Corp.
Sarah Kingdon, Corporate Communications, Franklin Templeton Investments, 416.957.6191