Younger investors far more likely to bail out in turbulent times
TORONTO, Sept. 8, 2015 /CNW/ - The vast majority (85 per cent) of Canadian investors didn't panic during the recent sell-off in global equity markets following China's economic turbulence, finds a new CIBC (TSX: CM) (NYSE: CM) poll.
"While the markets have been whipsawing investors for the last few weeks, it's good to see that the vast majority of Canadians have resisted the temptation to bail out of the market," says David Scandiffio, President, CIBC Asset Management. "Market fluctuations are a normal part of investing. Staying the course and remaining invested in a well-diversified portfolio is the key to long-term financial success."
The poll also shows that as a rule, Canadians do not overreact to wild market swings, with 73 per cent saying volatility doesn't affect the way they manage their investments. As many as 77 per cent of investors working with an advisor stay invested, compared to 65 per cent of self-directed investors.
As well, those over the age of 55 (82 per cent) are more comfortable than investors aged 18-34 (57 per cent) in riding out market volatility. Men (79 per cent) are also more likely to wait out market turmoil than women (67 per cent).
"The poll shows that younger investors tend to react to volatility much more than investors who have been through a few bear-bull cycles or those who have benefited from working with a portfolio manager or financial advisor who can provide perspective on the markets," says Mr. Scandiffio.
Emotional investors lacking long-term investment strategy tend to underperform
Investors who let emotions influence decisions and jump in and out of the market often underperform compared to those who stay invested, for a number of reasons:
- Buying high and selling low: Acting on impulse, they often buy and sell their investments at less than opportune times, waiting to get into the market until it is expensive and getting out of it when returns are at their lowest.
- Trying to time the market: Stock markets can make sharp advances or declines with little notice. Missing just a few of the market's best days can substantially lower returns. Someone who invested $10,000 in the S&P/TSX on January 1, 2004, and remained invested for 10 full years would have made approximately $11,000 more than an investor who was out of the market for the 10 best days.
- Triggering costs and taxes: Transaction costs and taxes triggered by the sale of investments in non-registered accounts can also hurt performance.
Mr. Scandiffio recommends staying invested, even during periods of extreme volatility.
"A well-diversified portfolio will help you meet your long-term financial goals", he says. "Market research has consistently shown us that investors who stay invested over the long-term outperform those who don't."
How to stay the course during periods of market volatility
For those investors struggling to follow their investment strategy during periods of heightened volatility, CIBC Asset Management offers some investment insight:
- Volatility decreases over time: Many investors look at the short-term stock market volatility of equities and consider it to be the norm. In reality, equities are likely to become less volatile over longer periods. One-year returns for the S&P/TSX Composite Index TR (total return) have varied widely over the past 50 years with gains of almost 45 per cent to losses of 33 per cent. But when annual returns are averaged over 15-year periods, performance is stable with gains varying between 6 per cent and 15 per cent. Simply put: The probability of negative returns decreases as your time horizon increases.
- Bull markets often follow bear markets: Markets don't move in linear fashion but via a series of ups and downs. Bull markets, usually defined as upward movements of 15 per cent or more, have typically lasted longer and provided a more significant percentage change than preceding bear markets. That's why sticking to an investment plan through market downturns generally pays off.
- Take advantage of dollar cost averaging: Dollar cost averaging is a long-term strategy that takes advantage of market volatility and price fluctuations to minimize risk and lower the average cost of investment units. It also reduces the temptation to try to buy low and sell high. The strategy requires that a fixed-dollar amount be invested in the same equity investment on a regular basis. This allows the investor to acquire more units when prices are low and fewer units when prices are high, lowering the average cost of units.
- Diversification is key: Historically, the best and worst performing asset classes have changed from year to year. Diversifying across asset classes frees investors from trying to invest in the right asset class at the right time.
Key Poll Findings:
Have you sold, or are you planning to sell, some or all of your equity investments due to recent volatility in the stock market (e.g. Chinese stock market crash, falling oil and commodity prices, lower loonie)?
|I don't know||10%|
* Refers to sample sizes too small to report
How does volatility in the stock markets affect the way you manage your investments?
|I ride it out, stock market
volatility doesn't affect
the way I manage my investments
|I don't know||13%||11%||13%||24%||*||*||*||19%|
|Other answer options
that have sample sizes
too small to report
*Refers to sample sizes too small to report
From August 31st to September 1st, 2015, an online survey was conducted among 1,504 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error - which measures sampling variability - is +/- 2.53 per cent, 19 times out of 20. The results have been statistically weighted according to education, age, gender and region (and in Quebec language) Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.
CIBC is a leading Canadian-based global financial institution with 11 million personal banking and business clients. Through our three major business units - Retail and Business Banking, Wealth Management and Wholesale Banking - CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada with offices in the United States and around the world. You can find other news releases and information about CIBC on our corporate website at www.cibc.com/ca/media-centre/.
SOURCE Canadian Imperial Bank of Commerce
Media contact: Caroline Van Hasselt, Director, External Communications, at 416-784-6699 or e-mail: Caroline.VanHasselt@cibc.com