Do you keep your money in the bank? Why?
We don't trust the stock market as Canadians. We are risk averse, meaning we don't like to lose our money. As a result of this fear, we are holding on to our assets in cash. According to one story we have over 75 billion in excess cash (which should be invested in the stock market, according to the writers who are stock market promoters). The investment community wants us to invest and the bankers want us to keep our money in the bank.
Some economists suggest Canadians that our cash positions are close to $750 billion but that’s $75 billion more than normal because of “risk aversion” that is abnormally high.
Canadians did this before back in 1987 after the stock crash, cash positions of Canadian households jumped by 20 percent. After the 2001 correction and the great recession in 2008, cash positions jumped by 30 percent. We don't trust the stock market as much as we trust banks. The reason is that Canadian banks do not fail easily and we are naturally conservative people when it comes to our money.
In 1997Canadian investors added to their cash positions for 18 months while the market gained 20 percent. In 2001, The same thing happened as investors missed out on the 2003 bull market. This time out, the economists argue many investors will miss the boat again.
The problem with keeping our money in the bank is that we lose capital every year. When we look at how much we are earning in the bank we forget to calculate the rate of inflation. We may get 2% on our savings at the bank, but inflation is at 2.5% so we lose .5% of our capital every year. The loss is subtle and not as dramatic as losing on the stock market, but we are still losing money.
Here is an idea, educate yourself. Whether it’s risk-aversion or analysis paralysis, you need to take action and get your retirement savings working for you. Speak with a financial planner who can help you make sense of your investment choices and risk tolerance. Read books, blogs, and magazines to try and educate yourself about investing and how to build a portfolio.
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