How financially fit are you?

Opinion

Staying fit is an admirable goal.

The same can be said about financial fitness. Yet a new, extensive survey of about 3,500 Canadians has found that about eight in 10 of us are not feeling very confident about reaching our financial goals.

In short, many folks don’t feel financially well.

If there is a common denominator among that sentiment it’s that “people are concerned about the rising cost of living,” says Karen McGuinness, senior vice-president, office of the investor at Canadian Investment Regulatory Organization (CIRO).

The national organization that licenses and regulates investment advisers in Canada recently released its inaugural Investor Survey to get better insights about investor behaviour “so we can better focus our regulatory efforts,” she adds.

Among the many findings in the 124-page report are that 54 per cent of Canadians identified as investors; of which 39 per cent worked with an advisor, and 23 per cent are do-it-yourself investors.

And among DIYers, four in 10 had opened their self-directed investment account in the last three years.

Of the 46 per cent of respondents said they were not investors, 60 per cent of those folks indicated they did not have enough money to invest.

Yet finding money is likely a challenge for even investors. Of the 2,000 respondents calling themselves ‘investors’, 29 per cent had less than $10,000 worth of investment, and 24 per cent per cent had portfolios worth between $10,000 and $50,000.

Needless to say, they have a lot of investing left to do to retire — the top goal among respondents.

Inflation has been a big headwind for investors — from the 2022 double-whammy of falling stock and bond values to finding money just to pay the bills, let alone to invest.

Even with inflation seemingly ‘tamed,’ prices remain significantly higher than just three years ago.

“There is the cumulative effect of seven, eight and nine per cent inflation… and wages have certainly not kept pace,” says portfolio manager John De Goey, author of Bullshift: How Optimism Bias Threatens Your Finances.

Indeed, Bank of Canada data show wages grew at about half the rate of inflation in 2021, 2022 and 2023. And even though the economy and markets are doing well (maybe we stuck that soft landing?) conditions are precarious.

In particular, the stock market is overvalued by many metrics.

For example, one of the key measures of stock market valuation — the CAPE ratio (cyclically adjusted price-to-earnings ratio) shows investors today are willing to pay nearly $35 for every dollar of market earnings. That number is higher than even before the stock market crash of 1929. The valuation was only higher before the Dot-com crash in 2000.

“There is a lot of stuff that could go wrong,” De Goey says, adding the U.S. market’s recent rebound has been driven by three stocks right: Microsoft Corporation, Nvidia Corp. and Apple Inc.

“When you have a handful of stocks that get way ahead of the market, it’s a sign of a bubble.”

For folks who can’t invest right now, it is a ‘be careful what you wish for’ moment, he adds.

“On the one hand, people wish they had more money to invest, and on the other hand, this is not an ideal time to put money in the markets, all other things being equal.”

Instead if you have debt, now is the time to focus on paying that down more than investing.

That said, doing both is ideal, and most people can find money to invest; it’s just a matter of motivation, says Toronto-based portfolio manager Darren Coleman with Raymond James, and host of the podcast Two Way Traffic.

“Panic is the mother of invention,” he says, noting most people find money for emergencies. For investing, they need to harness that approach.

What can help, though, is budgeting, or tracking spending.

“If you want to lose weight, you have to pay attention to what goes in your month,” he says. “If you want to save more money, you have to pay attention to what goes out of your wallet.”

Then again, individuals also need an investment and financial plan to guide the money that is set aside for investing, says Blair Evans, assistant vice-president of tax and estate planning at IG Wealth Management in Winnipeg.

“If your financial plan says you need to save X amount per month, you need to make sure that your budget aligns with that.”

The CIRO poll found that among investors with advisors, financial planning was among the most common services next to providing advice on investments.

“A financial plan is extremely important, but it’s not a one-time deal,” Evan says. “It’s something that you initially create and adjust with any major life event.”

To that end, the survey also found that 71 per cent of respondents with an adviser were contacted at least once a year to ensure their plans and portfolios are on track.

But the survey also found a sizable number (20 per cent) of Canadians likely getting their advice through social media, with 56 per cent stating it was equally valuable or more so than that of an adviser.

“Social media is a tool that can be used either in a beneficial way or with negative consequences,” McGuinness says. “Frankly, social media can be a source, unfortunately, of biased advice, uninformed advice, and it might even be a scam.”

Coleman agrees, adding it often “creates FOMO” (fear of missing out), prompting people to chase the next shiny thing.

Chasing the new shiny object — being consumer goods or investments — invites bad financial outcomes.

What you want, Coleman adds, is a boring, diversified portfolio that can get you to your goals with the least amount of risk and volatility possible.

Then, it’s just a matter of sticking to it, he adds.

“In other words, keep your hands and arms inside the ride at all times.”

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com