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Investors Acknowledge Emotional Investing

Thirty-four per cent of Canadian investors acknowledge that they take an emotional approach to investing and another quarter (26 per cent) are unsure of whether they do or not, says ‘Time to Take Stock,’ a report by Franklin Templeton Investments Corp. "Canadians are still looking at equities through 'bear market glasses.’ The dramatic market drop of 2008 continues to stand out in investors' minds, even as the market has climbed back up," says Ronice Barlow, head of strategic planning and business development Canada, Franklin Templeton. In fact, when Canadian investors were asked if they currently view fixed income assets (including bonds and bond mutual funds) as a ‘safe haven’ for their money, 61 per cent indicated that they do. Also, 35 per cent believe that fixed income assets offer the best returns in today's markets. These views on fixed income may be keeping many investors on the equity market sidelines and further from their long-term financial goals in a period where the S&P/TSX composite index has risen about 68 per cent since the market bottom in March 2009. The report outlines three concepts as to why investors hold the beliefs and make the decisions they do. These include ‘availability bias’ wherein decision-making is greatly influenced by what is personally most relevant, recent, or dramatic; ‘loss aversion’ whereby the pain of loss is generally much stronger than the reward felt from a gain; and ‘herding,’ defined by an innate tendency to follow the crowd which makes it easy for investors to get caught up in ‘what everyone else is doing.’

Courtesy of Benefits and Pensions Monitor website News Alerts

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