This issue discusses tax season and how you can invest in yourself and take more control of your financial well-being. We highlight how investors are increasingly becoming more conscious of and interested in environmental, social and governance factors. In addition, we provide insights into do-it-yourself investing. We also spotlight FAIR Canada’s Investor Survey Report, which contains valuable insights into the investing experience of Canadians.
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Research shows that money is the greatest source of stress in our lives,
ranking higher than health, work, and family obligations.
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Tax Season: A Time to Take Stock of Your Financial Situation |
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Tax season is upon us once again and, for many Canadians, it can be a stressful time of year. As the economic outlook for 2023 continues to be uncertain, it is not surprising that almost two-thirds of Canadians are either nervous or fearful about their current financial situation, according to a survey by Edward Jones.
In these challenging times, it is important to take stock of your financial situation and make smart decisions to help improve your financial future. Research shows that money is the greatest source of stress in our lives, ranking higher than health, work, and family obligations. Financial well-being, on the other hand, often leads to less stress, happier relationships, and better health. To improve your financial well-being, here are some tips and resources to help you:
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Review Your Tax Situation
As you prepare to file your taxes, take the time to review your tax situation. Review your income, expenses, and deductions to ensure you are taking advantage of all available tax credits and deductions. This will help you optimize your tax savings and reduce your tax liability. Resources are available to assist people with a modest income and a simple tax situation, such as Free Tax Clinics.
For additional guidance, check out the following resources:
Improve Your Financial Literacy
Becoming financially literate is one of the best long-term investments you can make in yourself. Developing a solid understanding of personal finance and investing can help you make better decisions, avoid costly mistakes, and create a more secure financial future.
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Reviewing your tax situation, educating yourself, creating a financial plan, and saving for retirement are all crucial steps
towards realizing financial well-being.
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Create a Financial Plan
Consider working with a qualified financial planner to create a plan that works for you. Having a good plan helps you set clear goals, which means you’ll have a better chance to achieve them. To paraphrase Benjamin Franklin, you’re more likely to succeed if you have a plan.
Your plan should include a budget, and strategies for reducing your debt while increasing your savings and investments. A qualified planner can provide insights about investing, retirement planning, tax planning, and can help you navigate complex financial decisions.
A few organizations certify who can help you create a financial plan, such as FP Canada. You can check out its website on how to find a financial planner.
If you want more information about financial planning or budgeting, check out the following tools:
Saving for Retirement
When we asked Canadians why they invest, the number one reason was to save for retirement. In fact, 68% of respondents to FAIR Canada’s Investor Survey said it was their top priority.
One way to help you save more when you invest is to take advantage of tax-saving accounts through a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). For more information, check out the Government of Canada’s resources on how to set up an RRSP or their Guide on TFSAs for Individuals.
Taking control of your finances may seem daunting at times but, with the right resources, it might be easier than you realize. Reviewing your tax situation, educating yourself, creating a financial plan, and saving for retirement are all crucial steps towards realizing financial well-being.
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What You Should Know About ESG Investing |
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On April 22, Earth Day is celebrated around the world. It is a time for us to consider the impact we have on our environment and our planet. Given growing concerns about the environment, more and more investors are taking environmental, social and governance (ESG) factors into account when they invest.
Consulting firm McKinsey & Company reported that since 2019, there has been a fivefold increase in online searches for ESG. Further, a study by the Responsible Investment Association found that 75% of respondents would like their financial services provider to inform them about responsible investments.
ESG investors choose investments that align with their values, such as fighting climate change or improving diversity in the workplace. For example, an investor who is concerned about the environment may invest in a renewable energy company that manufactures solar panels and has strong environmental practices.
Investors may also choose ESG-based investments because research suggests they may provide good financial returns. Recent research from New York University, which analyzed more than 1,000 studies on ESG, found a positive relationship between ESG factors and financial performance.
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If you’re considering ESG-based investments, pay attention to the products being promoted, do your own research before you invest,
and consider consulting an advisor.
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Investment fund companies and others are responding to investor demand by offering funds marketed as ESG-focused. The lack of global standards for ESG-related information, however, creates a risk that investors will be “greenwashed”. This occurs when marketing materials intentionally or unintentionally mislead investors about the ESG-related aspects of a fund.
Regulators in Canada and internationally are taking steps to create ESG guidance and standards. In 2022, the Canadian Securities Administrators (CSA) released guidance for investment funds promoting ESG funds to investors, and also for companies disclosing ESG performance in their financial statements and other documents.
Earlier this year, the International Sustainability Standards Board (ISSB), an organization tasked with developing global ESG reporting standards, announced that it had finalized new standards that will take effect in January 2024. However, it will be up to each country to decide whether to adopt the standards as developed by the ISSB.
If you’re considering ESG-based investments, pay attention to the products being promoted, do your own research before you invest, and consider consulting an advisor. Check out the following resources to learn more about ESG investing:
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The Rise of Do-It-Yourself Investors |
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In recent years, many more Canadians have started managing their own investments without advice from an investment advisor. Known as do-it-yourself (DIY) investing, Canadians opened a staggering 2.3 million DIY accounts in 2020, up from 846,000 in 2019, according to research firm Investor Economics. The increase in the number of DIY investors can be explained, in part, by new mobile technology and low-cost trading platforms, which enable investors to trade and manage their portfolios. |
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DIY investing is particularly popular among young adults. A recent British Columbia Securities Commission research report found that Canadians aged 18 to 24 are more likely than any other age group to self-manage their investments. The research also revealed that this age group has a higher risk tolerance and is more likely to buy risky financial products. As well, they are more likely to get information about investing from social media.
The surge in DIY investing, especially among younger Canadians, is raising concerns. One major concern is that some DIY investors may not fully understand the risks they are taking. Discount brokers are exempt from certain legal requirements designed to help protect investors, such as recommending only those investments that are suitable to your situation.
Also, while an OSC study showed that DIY investors tend to be the most financially literate, it also found that investors under age 35 tend to overestimate their financial knowledge. This overconfidence, coupled with their reliance on social media, may make younger DIY investors more prone to fall for social media hype or misinformation, or for online investment scams.
Another concern is the potential gamification of trading platforms. Gamification means applying the elements of video or online games, such as rewarding players with points, into non-game environments. Gamification techniques can be used to encourage frequent trading or steer investors to make particular investments that may not be good for them. They can also negatively affect decision-making and lead to poor outcomes. An OSC study found that participants who were awarded points for trading stocks made 39% more trades, even though the points had little economic value. This is problematic because, in general, frequent trading has a negative impact on investor returns.
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Tips and Resources for DIY Investors |
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If you’re thinking of becoming a DIY investor, make an honest assessment of your level of investment knowledge and whether you have the time to research and manage your investments on your own.
Keep in mind that there is not much regulators can do to help DIY investors if they suffer losses. Here are some tips to help you with DIY investing:
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Understand your risk tolerance: The Financial Consumer Agency of Canada’s risk tolerance quiz can help you assess your risk tolerance. Take the quiz!
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Develop an investment plan: Create and follow an investment plan that reflects your risk tolerance.
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Research trading platforms and investments: You will need to research not only which investments to buy, but also which discount brokerage or trading app to use.
To learn more, check out the following resources:
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Saskatchewan Financial and Consumer Affairs Authority: DIY Investing
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What’s New at FAIR Canada |
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FAIR Canada – Investor Survey Report
FAIR Canada recently released its inaugural investor survey report, aimed at capturing the perspectives and concerns of retail investors in Canada. The study surveyed 1,000 individual investors, covering topics such as the types of investments they buy and their sources of investment information.
The research offers fresh insights into the characteristics and behaviours of Canadian retail investors. For example, it showed that investors rely heavily on their advisors, but are unsure who to trust. Investors are also concerned about paying too much in fees.
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Check First, Invest Later
The Financial and Consumer Affairs Authority of Saskatchewan has launched a campaign to educate the public about investment fraud and how to avoid it. The Check First, Invest Later campaign focuses on a simple preventative step that can help you determine the legitimacy of an investment opportunity—checking the seller’s registration status. Most legitimate investments require the seller to register with a regulatory body.
You can check if a person or company is registered through the Canadian Securities Administrators’ National Registration Search. By taking this simple step, investors can help protect themselves from investment fraud and help to avoid losing their hard-earned savings.
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