High cost of living pushing seniors to riskier investments

High cost of living pushing seniors to riskier investments

Fixed-income investments have long been an attractive option for aging populations, but as rates cool, there’s a growing risk appetite

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Despite the rising cost of living and the need for more cash, even simple investing concepts still confuse a lot of people, which helps explain why about four in 10 Canadian investors aren’t sure what ETF stands for and don’t know what dollar cost averaging is, according to a recent poll by CIBC Investor’s Edge.

Overall, 48 per cent admit they aren’t investing new money every year and only 56 per cent say they are comfortable investing their own money, with 65 per cent of them pointing to a lack of knowledge and 57 per cent being afraid of losing money.

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Despite the fear and lack of knowledge, four in five people say knowing how to invest is important and having more information would help build their confidence.

Luka Marjanovic, managing director and head at CIBC Investor’s Edge, offers his take on what investors should know about, well, investing.

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Q: What separates people’s investing habits by age group and how important is it for older Canadians to stay or get into investing? 

A: Cost of living is a huge concern for Canadians of all ages. We know that 71 per cent of investors are doing so to fight the rising cost of living. Where we do see some variation is in the approach different demographics are taking.

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The data suggests that compared to men, women tend to be more likely to hold GICs (guaranteed investment certificates), less likely to hold stocks, ETFs and mutual funds, and statistically less likely to hold crypto. Those 55-plus are less likely to hold ETFs and cryptocurrency, but are significantly more likely to hold GICs than their younger peers. The youngest demographic, 18-to-34-year-olds, are significantly less likely to hold mutual funds.

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Risk plays a role in these decisions, but education and keeping up with the latest trends in investing are also factors.

Q: The traditional rule of thumb has been to move more into fixed income as you get older, but has that changed since we’re living longer and need more money?

A: Fixed-income investments have long been an attractive option for aging populations looking to lower their risk profile, but as rates cool, we are seeing a growing risk appetite among this group and a growing interest in stocks and ETFs. 

A longer life expectancy and a sharp increase in the cost of living mean that older generations are seeing the purchasing power of their savings diminish and higher-risk, higher-potential-yield investment vehicles are one way they’re seeking to address it.

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A CIBC poll from 2023 found that nearly two-thirds of Canadians not yet retired worry about running out of money during retirement and only 41 per cent of those are feeling confident they are saving enough to achieve their retirement goals. 

Q: What are some of the investing themes you’re seeing?

A: Interest in GICs and fixed-income products has declined since reaching a high late last year, and interest in stocks and ETFs has been rising in light of market performance and rate cut predictions. 

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Across the board, Canadians are keen to build their investing knowledge: 79 per cent said knowing how to invest is important and 73 per cent said they’d like to learn more, which is perhaps why more and more clients are embracing a combination of direct and managed investing.

(By the way, ETF stands for exchange-traded fund, which allows you to invest in various stock indexes, sectors, themes and even private equity at a much lower cost than mutual funds. Dollar cost averaging is the practice of investing the same amount of money on a regular basis, regardless of the investment price. This strategy is designed to spread the amount of money you invest over time so you don’t have to worry about market timing.)

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