Canadians are avoiding stocks and other investments like the plague. They won’t be a part of this volatile market, preferring to hold cash. The way markets are going these days, investors are embracing the old adage: cash is king.
But as Canadians sit on the sidelines during this roller coaster ride, they risk missing out on the bull market and greater returns, says a new study by CIBC Economics. Right now, it’s an “ocean of fear” out there.
The report found that risk-averse Canadians are holding a record $75 billion in cash as personal cash positions are at record highs. This stems from the post-2008 crash when consumers started to accumulate their cash assets in checking and saving accounts, and have been building on that hoard ever since.
In the past year alone, cash holdings are up a whopping 11 percent.
CIBC deputy chief economist Benjamin Tal noted in the report that the 1987 stock market correction lasted just two months, but consumers added to their cash positions for 18 consecutive months.
“What’s more troubling than holding cash for long periods of time is that investors often move into it at precisely the wrong time. The usual response is to take money off the table at the worst possible time,” Tal said. “Over the past five years, the TSX Volatility Index has peaked over the 20 mark eight times and, in the 90 days following, the TSX returned an average of nine per cent.”
In the end, according to CIBC, Canadians could miss out on the rebound in stocks because they’re too frightened of the prospect of losing their money. The potential outcome for investors is the idea they’re “buying high and selling low.”
Of course, this has been the trend for a long time, especially among millennials.
It has been regularly reported that millennials are preferring to stuff their dough under the mattress instead of putting in the market, and this will likely hurt Wall Street because millennials will control $36 trillion by 2061. One of the reasons why millennials are shunning the stock market is because they have witnessed a handful of crashes in their lifetime and noticed the damage that has been inflicted upon their parents. Another reason is that they don’t have the money to do it.
“The preference for cash and aversion to the stock market among young adults is very troubling considering this age group has the biggest retirement savings burden. They won’t get there without being willing to assume a little short-term price risk in their long-term money,” said Greg McBride, CFA, Bankrate.com’s chief financial analyst, in a statement. “The stock market records are getting the attention of some investors, as the percentage favoring the stock market increased to 19% from 14% last year. But overall, Americans are still risk-averse when it comes to how they invest their money.”
–AM
Photo by Masahiko OHKUBO via Flickr.
Lol! Just cannot tolerate any thought that traditional market thinking no longer applies almost overnight.
Millennials simply can’t afford do not- what? Not be duped like your dead capital monkey market shenanigans? Sorry, not enough are going to buy into the tired, presumptively spent rhetoric. Millennials have long-term future options you never dreamed of, Spanky.
With the fall of the Canadian dollar, they are going to need that cash as price inflation takes off.