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The majority of Canadian consumers surveyed have high expectations for their investment returns and are saving less, while failing to understand key risk concepts, a Natixis Investment Managers study says.

The 2023 Natixis Investment Managers Survey of Individual Investors, released on Wednesday, reveals that 85% of Canadian respondents acknowledge the wake-up call of last year’s equity declines. However, investors are still expecting average annual returns of 10.6% above inflation over the long term — approximately 15%, considering the current inflation rate.

The survey also highlights gaps in investors’ understanding of rates, risk, and passive investing, with long-term expectations of returns exceeding what financial advisors deem realistic.

“In the decade between 2012 and 2021, even the least experienced investors looked smart in a market that delivered high returns with low risk and relatively little effort,” said ​​Dave Goodsell, head of the Natixis Center for Investor Insights, in a release. “The market promises slower growth and greater risk, but investors have not meaningfully adjusted their return assumptions or reassessed where real risks lie.”

Findings reveal that Canadians’ primary financial fear is the inability to keep up with rising costs. Three in four Canadian respondents expressed concerns about higher everyday expenses and 63% identified the impact of inflation on their savings and investments as their top investment worry.

While 45% recognized the importance of investing more to counteract the erosion caused by inflation, only 20% reported actually saving more. In contrast, 63% stated that they were saving less due to increased everyday expenses.

Investors also exhibited anxiety regarding interest rates, although many lacked an understanding of the topic. The survey revealed that rising interest rates was one of the top concerns for just over one-quarter (26%) of respondents. Consequently, 23% of investors added bonds to their portfolios this year, and 25% plan to increase their bond investments next year.

However, when asked about their understanding of bond performance in relation to interest rate changes, only 2% of respondents accurately stated that present bond values typically decline while future income potential increases.

Misconceptions regarding passive investing were also highlighted in the survey results.

Over half of respondents (53%) incorrectly believed that index funds carried less risk than other investments. Further, 58% of investors thought that index funds helped minimize losses, and 56% assumed that these funds provided access to the best opportunities in the market, failing to recognize the potential risks associated with them.

Recognizing the need for professional advice, Canadian investors sought assistance beyond investment-related matters.

The survey revealed three key advisory services of interest: retirement income/planning (59%), overall financial planning (41%), and tax-efficient investing strategies (41%). Additionally, 30% of investors said they lack understanding of how taxes impact their investments.

The vast majority of Canadian respondents (96%) trust their financial advisors to help them make investment decisions, while few trust investment advice coming from algorithms or artificial intelligence (17%), financial media (38%), or social media (4%).

The survey of 8,550 individual investors — including 300 Canadians — in 23 countries was conducted by CoreData in February and March, 2023.