Industry News

Investment results often more dependent on investor’s behaviour than on fund performance, report finds

By Leah Golob |

 

Millennials have a tendency to be cautious investors, probably because of a behavioural bias they have toward money, according to a new report published by Toronto-based BMO Wealth Management.

The report, entitled Make better investment choices by understanding and reducing bias, reveals that millennials are more likely to put money aside and decide what to do with it later (31%) than their elder counterparts, Generation X (22%) and baby boomers (22%). 

Furthermore, millennials are much less inclined to buy and hold investments for the long term (32%) in contrast to Gen X (43%) and baby boomers (44%).

The bias toward conservative investing among millennials may have been influenced by the global financial crisis of 2007-08, which occurred when many millennials were just beginning to assume financial responsibility. Notably, millennials have adopted a strong preference for saving, similar to their grandparents or great-grandparents, who lived through the Great Depression.

Baby boomers, on the other hand, demonstrate more confidence in their investments over the long run, the report says. They've historically had strong average returns, which has helped them to withstand the ups and downs of the market.

The report concludes that investment results are often not related to how funds perform, but rather an investor's behaviour.

"The financial professional can play the role of behavioural coach with clients to remove biases from investment decision making," says Chris Buttigieg, director of the wealth institute at BMO Wealth Management. "This will go far in enhancing the performance of their portfolios.

"Furthermore," he adds, "a financial professional can be a source of information or education and guidance that will help improve the financial literacy levels of their clientele to address specific areas of concern."

The report also examined the investment goals of each generation. It revealed that more than half of those surveyed cited retirement as their top goal. While millennials agreed that saving for retirement is important, they were half as likely to prioritize retirement savings (32%) than baby boomers (63%) and Gen X (62%).

Other top priorities for millennials include saving for vacation (29%) or a home upgrade or purchase (27%).

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