CANADIANS ARE SADLY LACKing in knowledge about investing, according to a report by Bridgehouse Asset Managers in Toronto, a division of San Diego-based Brandes Investment Partners LP. And that knowledge gap could end up hurting their investment returns and income.
Bridgehouse’s investor know- ledge index is based on results of an online quiz taken by 1,004 Canadians with $25,000 or more in investible assets. The quiz tested participants’ knowledge of investment concepts and terms, such as the definition of “bonds” and the difference between passive and active management.
The survey found that most Canadians have a limited understanding of investing, with the average participant scoring 39%.
One of the largest knowledge gaps found is in the survey participants’ understanding of where they can invest their money. Results showed that 82% of Canadians believe there are foreign-content restrictions on investments held in their RRSPs – even though those limitations were eliminated in 2005.
With global markets showing general improvement, now is the time to talk with your clients about investment options, including foreign equities, says Carol Lynde, president and chief operating officer of Bridgehouse: “Canadians have been invested in Canadian assets and the market has done very well compared to globally. But now, that’s changing.”
Clients also are confused by the various tax treatments of investments. While about 70% of study participants understand what bonds and equities are, only 43% of participants knew that interest earned is taxed at a higher rate than other investments. Only 24% of participants knew that capital gains receive the most favourable investment tax treatment.
Seventy-two per cent of survey participants, realizing their knowledge of investments is a little shaky, said they would like to learn more, while 93% would like to see the education system include some form of financial education, including investing basics.
Bridgehouse intends to use the information from its survey as a baseline for annual indices, says Lynde, as well as for the development of education tools that financial advisors can use with clients.
“We really do feel that an educated investor is a better investor [who is] more knowledgeable and comfortable about their financial situation,” Lynde says. “And when the market gets volatile, they’ll stick to their plan.”
Environics Research Group conducted research for Bridge- house in October 2013.
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