Canadian investors have been steadily lowering their expectations for rate of return on their investments since 2002, according to the 2006 TD Waterhouse Investor Poll.

That’s despite the fact that the S&P/TSX composite index reached an all-time high at the beginning of this year and posted a 21.91% gain in 2005.

The poll, which was conducted between Octl 18 and Nov. 2, 2005, found that only 36% of respondents expect to earn a higher rate of return in 2006 than they did in 2005.

As well, expectations have been steadily dropping for several years. In response to the question whether they thought next year’s returns on their investments would be higher than returns in the current year, the proportion of respondents who said yes was 52% in 2002, 49% in 2003 43% in 2004 and 36% in 2005.

“In the roaring Nineties, Federal Reserve Board Chair Alan Greenspan’s famous dictum ‘irrational exuberance’ perfectly captured the mood of the times,” said Patricia Lovett-Reid, senior vice president, TD Waterhouse Canada Inc. “It seems that this time around, Canadian investors are keeping their feet planted firmly on the ground”.

“The poll demonstrates that people are becoming more sophisticated in their understanding of how markets operate,” continued Lovett-Reid. “They know that there is an ebb and flow to markets and economies, and that you can’t base future expectations on past performance. Their tempered expectations for 2006 are also in line with what TD Economics and other economists are forecasting for 2006.”

TD Bank expects a U.S. economic slowdown in the third and fourth quarters that will negatively impact Canada’s economy, directly through weaker exports and indirectly though softer demand for commodities. Outside of gold, which still has further upside from current levels, TD expects commodity prices to fall back by 15%, led by declines in the prices of energy and base metals.

As real GDP growth slows from 3% to 2.5% in the second half of 2006, corporate profit growth will decline from this year’s double-digit range to the mid-single digits. The Bank of Canada should continue to raise rates up to 4% in the second quarter, but will then reverse the current tightening and lower rates to 3.5% by year end. Lastly, TD Bank expects the growth in average house resale prices in Canada to slow to about 5% in 2006.

“All told, this will be a more challenging environment for Canadians investors,” commented Bob Gorman vice president, managed investments, TD Bank Financial Group. “That being said, we still see more upside with returns in the mid-single-digits.”

TD Waterhouse’s sixth consecutive annual poll was conducted by Toronto-based research firm TNS Canadian Facts. They conducted telephone interviews with 1,000 randomly selected Canadians across Canada who hold investments products either inside or outside of a registered savings plan. Respondents were between the ages of 18 and 69. The total sample data is accurate to +/-3.1 percentage points, 19 times out of 20.