Peel away the skin and we’re identical underneath, no matter if we live in the United States, Canada or across the world in the Middle East. I suspect our investing behaviours and fears are not much different either. I would hypothesize individuals across world regions have the same emotional attachments to money and investing, although some external forces such as culture and religion may cause more tension and thus be larger factors. Unfortunately, those comparative studies are elusive, at least to me they are.
To provide more insight into what I mean, how/if/could financial fears be any different around the world, I would like to revisit some data in the BMO Psychology of Investing Report, released towards the end of last year. This report revealed the following data about Canadian investors:
- Nearly 60% of Canadians surveyed say they have invested on impulse at least once.
- Only 16% surveyed are very familiar with the actual investments they hold in their portfolios.
- 41% of Canadian investors did not believe they were investing enough.
- 90% felt they had not saved enough to even warrant investing.
- In addition, fear of losing what they invested in (79%); feeling that investing was too complicated (76%); and not knowing who to turn to for advice (64%) were all identified as major investing barriers.
Getting past your own emotional and often perceived barriers about investing is an essential step towards success. Luckily for many Canadians, there is an abundance of financial professionals if you want to take advantage of them. Hopefully, Canadian investors are getting good value for their money and not being taken advantage of, although that’s an entirely different blogpost to discuss that. My point is, Canadian investors are not necessarily fearful of the stock market; the data says we are not averse to pouring our hard-earned money into investments rather the data suggests many Canadians lack the financial literacy to manage their investments or their personal finances.
Is the lack of financial literacy in Canada really any different when compared to other world regions? Are our investing behaviours in Canada unique at all?
I would like to think financial forces in other parts of the world tell a different tale than Canada but I cannot totally be sure. In the Middle East world, I have read there is more focus on “keeping cash king” and avoiding markets despite the growth of a modern financial services sector across this region. Although the situation is slowly changing, banking and dealing with money in the Middle East is still treated with suspicion. For the most part, I would think Canadians trust our financial system on the whole. Back to the BMO Psychology of Investing Report, Serge Pépin, Vice-President, Investment Strategy, BMO Asset Management Inc., was quoted saying:
“While we’re only human, wise investing means more than simply following your heart. It’s critical not only to take the time to understand the market environment before making any financial moves, but also to ensure you’re in the right frame of mind to make such decisions.”
True but controlling your emotions is easier said than done.
As a personal finance geek, I would like to find a comprehensive study on the investing behaviours across world regions. I would be interested to learn if any of the following occur that would confirm my hypothesis – different people from different places have the same emotional money-barriers to overcome. Regardless of the cultural factors at play:
- Most investors perceive market losses with suspicion and thus are cautious (stop investing now) while most investors perceive market gains with trust and feel compelled to take action (time invest again).
- Most investors grossly overestimate their skills, akin to, “of course I’m a good driver?!”.
- Most investors take a very short-term view (measured in months) despite the overwhelming literature that a long-term view (measured in decades) will be hugely successful.
- Most investors are obsessed with prices but instead should be obsessed with trends.
What do you think about my hypothesis? Do you know of any studies that confirm or refute my thinking?