I’m not sure if I’ve ever stated this before, but I think of myself as a champion saver but an amateur investor. It’s maybe due to my lack of experience with investing money, but I just find the whole thing really intimidating. That’s not to say that I don’t realize the importance of investing because I do. As I mentioned in my New Year’s Resolutions post, one of my goals this year is to find a financial advisor (I’ve never had one before) and to explore ways to better invest my money. Right now all I’ve got is some cash sitting in a TFSA making 2% interest, another High Interest Savings account making 1.2% interest and and RRSP Mutual Fund which has lost me about $300 since I opened it last January. Damn you recession.
So, since I’m no investment expert quite yet (I’ll get there), I can help you at least to get yourself started. The first important thing to know is why you should invest your money instead of just let it sit in the bank. Inflation is about 2-3% per year, which means every year the value of things increase, so you need to make sure your money follows suit. If you’ve got money sitting in the bank and it’s not making the same rate as inflation, then it’s almost like taking a bunch of cash out of your wallet and throwing it in the garbage. When I first started looking for a High Interest Savings account that would match the rate of inflation, I went to the financial section on redflagdeals.com to compare all of the banks’ rates, so it might not be a bad idea to check it out too.
As for TFSAs and RRSPs, the main reason I opened these types of accounts was for tax shelter. It’s key to remember that if you make any interest from your savings account, you have to claim that as income on your taxes, unless it’s in a TFSA. Last year I used the remainder of my university tuition for my education tax credit, so I knew in order to avoid paying taxes and to hopefully get some money back for my 2011 taxes, I needed to open up an RRSP. I chose a long-term, mainly stocks mutual fund for my RRSP, which is currently losing me money. This is bound to happen in economic times such as these, but since I have no plans of taking any money out for a very long time, and I’ve made sure to only invest an amount I’d be okay with losing, I’m hopeful that in a few years the value of the fund will start to go up.
Another thing to keep in mind, if you are investing money into a riskier investment like a mainly stock fund like I chose, make sure to only invest what you can afford. What that means is don’t put your life savings into the fund hoping it will double overnight. Put in an amount that if worse case scenario the fund tanks, it won’t force you to move back into your parents’ basement. If you don’t like the sound of a riskier investment, opt for a safer investment such as a more balanced portfolio of stocks and bonds. Although these are less risky, these funds are also known for being less profitable. Most finance books suggest going with a riskier investment while your young then switch to a safer investment when you get older.
I do have plans for writing a series of posts based on my search for a financial advisor, so stay tuned for all that. In the mean time, if you start with these investing basics, then you’ve got a pretty good foundation for the beginning of your financially savvy, sassy and independent life.
This post is a part of Women’s Money Week 2012. For more posts about savings & investing, see womensmoneyweek.com.
-Mo’ Houses out!