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The holidays are over and that pound of fruitcake has somehow turned into two pounds on the thighs. It must be the beginning of the registered retirement savings plan (RRSP) season.
But how are Canadian investors feeling about contributing to their RRSPs this year, as March 3 – the deadline for tax year 2013 – approaches?
"Cautious optimism. That's how I would describe it," says Greg Pollock, president and chief executive officer of Advocis, The Financial Advisors Association of Canada, in Toronto.
For good reason. The past 12 months have been a financial mishmash of the good and bad. There continues to be uncertainty around the possibility of a housing market bubble splat, a slowly strengthening global economy, an unsustainable household debt level and the spectre of rising long-term interest rates later this year.
Even so, there's plenty to put Canadians in a good mood as they shop around for RRSP-bound investments now. Just look at 2013. In the U.S., the S&P 500 climbed 30 per cent last year, the most since 1997. Closer to home, there was a respectable 9.6-per-cent gain for the Toronto Stock Exchange's S&P/TSX composite index.
It's that kind of number that, while not stratospheric, makes financial planners working with clients and their retirement plans happy, Mr. Pollock says.
"Steady growth is a good thing. As financial advisers, we're always looking at the long-term horizon, not the real sexy, fast gain that some people get a charge out of," he says.
He's not the only one to feel that slow and steady growth is starting to pay off. According to the Investors Group-Harris Decima Index, Canadians felt more confident in general about the economy in 2013 than they had in the three years previous. Not a bad way to enter the New Year.
Pay now, play later
While Canadians may feel generally upbeat about how the country is faring financially as a whole, is it enough to encourage them to part with their money today and save for retirement tomorrow?
Not if you believe the numbers coming out of a recent study by the Bank of Nova Scotia suggesting that fewer Canadians plan to contribute to their RRSPs leading up to the deadline. It found that only 31 per cent of Canadians plan to contribute this year, a decrease from 39 per cent in both 2012 and 2011.
The Scotiabank study was done by Harris/Decima and surveyed 1,029 Canadians online from Nov. 12 to 27, 2013.
Of those who already have money socked away in RRSPs and were thinking of adding more, 74 per cent said they either lacked money, couldn't afford it, or had too many expenses and debts to make it happen.
That's not surprising considering that household debt is at an all-time high with Canadians now owing nearly $1.64 for every $1 of disposable income they earn in a year, according to Statistics Canada numbers. Today's investors who are entering their middle years are not only struggling to make their $500- or $1,000-a month debt payments, but, if living in some of Canada's more expensive cities, are picking away at sky-high mortgages, too. Don't even talk about daycare costs and planning for their children's postsecondary education with registered education savings plans (RESPs).
Think rock. Think hard place. Retirement planning can wait.
A lasting impression
Then there's also the little issue of long memories and short patience.
"Retail investors have been mistreated twice in the last 13 years, first by the tech bubble and by the financial crisis. They're not – for good reason – a very trusting lot," says Matt Barasch, head of Canadian equities for RBC Wealth Management Services in Toronto.
At least that's the case for more seasoned investors, who, even after watching the markets bounce back in the past year, still may be experiencing muted investment jitters. When it comes to younger adults, those who only have the past five or six years to consider, saving for retirement by turning to RRSPs may seem like a way to get nowhere fast. The current low-interest environment encourages more debt and less saving, Mr. Pollock maintains.
"A lot of them think this is the way the world is," he says.
Despite how individual investors feel, Mr. Barasch sees the overall investing mood as quite positive, especially when gauging professional investors' attitudes.
"If you look at institutional investors – the sell side and buy side portfolio managers – there's virtually no skepticism there. They see a very accommodative monetary policy backdrop," he says of those who, on the sell side, pitch products such as stocks and bonds and persuade people to invest in them and, on the buy side, those who raise investor capital and then decide how to invest the money.
The main worry is what will happen if a firming global economy creates the right atmosphere for raising long-term Canadian rates later this year. That uncertainty could slow retirement saving in the coming months, or at least persuade some people to use their tax free savings accounts instead, due to the TFSA's flexibility and lack of penalty for withdrawing the money in an emergency.
No matter how the markets dip and swing in 2014, however, the trick to riding the waves is to ignore them for now. After all, that's what retirement planning is all about, says Mr. Pollock.
"Stick with the fundamentals. Have a long-term plan."