In the first Informed Investor of 2022, we provide a brief market update and share a psychological trick that can motivate you to make positive financial changes.
One-minute market update
The spread of the new Omicron variant of Covid-19 shook investor confidence at the beginning of December. However, markets had seemed to shrug off these concerns by mid-December, with developed and emerging equity markets both showing positive gains for the month.1
RBC Global Asset Management (RBC GAM) recently published its 2022 Global Investment Outlook.2 According to the report, underlying economic conditions remain good by historical standards and the recovery is still in good shape. Economic growth is expected to continue in 2022, though at a slower pace than in 2021.
Corporate profit growth was strong in 2021 and will likely need to increase further to support gains in relatively high stock prices. Over the next few years, an environment of still-low interest rates in which inflation could return to normal levels also supports an upward course for financial markets.
The report also details the ongoing challenges presented by persistently high inflation, supply chains, and China’s property market slowdown.
As we wrote last month, since even professional investors are unable to consistently predict short-term market movements, a sound strategy is to buy regularly over the long-term no matter what the market does.
The fresh start effect
According to a new Ipsos poll, 41 per cent of Canadians were planning to make a New Year’s resolution about their finances.3 If you are one of these Canadians, you may have decided to use the strategy above by setting up an automatic contribution to your investments or by increasing the savings that you’re regularly putting away towards long-term goals.
Sian Canavan, the Head of RBC InvestEase, has made a couple of resolutions for 2022. Sian will be making more time for friends – at least one hour per week (even if virtually!), and she’ll work on balancing investing for her future with spending for today by setting a regular time each month to reflect on her purchases.
Both you and Sian get a tailwind when making this kind of resolution at the start of a new year, thanks to a phenomenon called the fresh-start effect. Research has found that dates and life events that feel like fresh starts seem to give people a surge of motivation to pursue positive change – dates like our birthdays or the start of a new year, month, or even week, and significant events like promotions or moving cities.
As Katy Milkman, a behavioural scientist at the University of Pennsylvania’s Wharton School, explains in her book How to Change: The Science of Getting from Where You Are to Where You Want to Be: “We’re more likely to pursue change on dates that feel like new beginnings because these moments help us overcome a common obstacle to goal initiation” the sense that we’ve failed before and will, thus, fail again.”
One recent study that included more than 6,000 university employees found that participants were 20 to 30 percent more likely to begin saving for retirement if their savings start date was labelled as their next birthday or the first day of spring.4
So, if you’ve been meaning to make a positive change – like making and sticking to a realistic budget or starting to contribute to an RRSP to take advantage of the tax savings –consider making your start date a fresh one to help power that positive change.