Market volatility blamed as Canadians stockpile record levels of cash

TORONTO -- Canadians are holding a record $75 billion in extra cash and continue to sock away money at a rate not seen in more than four years, according to a new report from CIBC World Markets.

Normally that extra money would be invested in equities, but the study found that nervousness over volatility in the markets has many Canadians reluctant to take the plunge.

And that, CIBC says, could end up costing them billions in lost investment returns.

According to the study, excess cash reserves held by Canadians have risen notably since the 2008 financial crisis.

In the past year alone, cash positions are estimated to have risen more than 11 per cent -- the fastest pace since early 2012 -- reaching $75 billion as of December 2015.

That figure represented almost 10 per cent of the total value of overall personal liquid assets in Canada.

"We are currently witnessing the creation of personal cash buffers larger than at any other time on record," said Benjamin Tal, deputy chief economist at CIBC World Markets and a co-author of the report.

"From a broader perspective, the Canadian economy is losing out because capital is not being allocated efficiently."

An overly sour view of Canada from foreign investors combined with recent volatility in stock markets around the world has made for a tough investing environment, the report says.

"Consistent with past behaviour, Canadian investors have used current market volatility as an excuse to let cash pile up in their chequing and savings accounts," Tal said.

The report finds that all Canadians, young and old alike, are making cash a bigger part of their portfolios.

"But , strikingly, those under 35 -- the farthest away from retirement -- are holding twice as much cash as those over the age of 65, about 33 per cent versus 15 per cent," CIBC said in a release.

"While holding cash can guard against short-term spikes in volatility, it's certainly a long-term drag on portfolio returns," Tal said, adding that while the rush into cash during periods of volatility is understandable, Canadians tend to maintained those elevated cash positions for far too long after markets rebound.