I'm saving money. Now what?

We have been telling members for years to put money away every month. Some of our younger members have started doing just that, but they aren’t sure what to do with the money they save to make it work for them.  I suggest the following:

Mutual Funds – mutual funds are a collection of investments that usually hold a variety of stocks, bonds and seg funds.  Some can be industry specific (focus on the energy or banking sector) and others are much more diversified.  There is risk with mutual funds that you could lose your investment, and you need to be aware that mutual funds charge fees for managing your fund.  In the long run mutual funds can be a good investment for those who want to invest but don’t feel comfortable doing it on your own.  The fee you pay is to have someone adjust your investments for you.  You should meet with your advisor at least annually to make sure they are doing what you want.


Stocks – stocks give you the opportunity to own specific companies.  This means you can receive dividends (if they pay them) and you share in the ups and downs of the market with your stock prices.  Choosing the right companies could give you tremendous returns on investment, but it takes homework to pick good companies, and it can be difficult to diversify your risk when investing directly in stocks.  Remember that for every Microsoft there are at least 2 Bre-X’s.  If you do your homework and keep emotions out of your investment behavior, you could do quite well.

Bonds – bonds are usually considered the safest of investment vehicles.  When you buy bonds form a well rated company or country, you are buying their debt and they are paying you interest.  The stability that comes from bonds can have a cost in that low risk also means lower rates of return.  While this is a downside, their low risk status has been appreciated over the past 2 years in the face of stock volatility.  You may have to pay a fee for a broker to purchase on your behalf.

Property – over the past decade many people bought property as the investment that never decreases.  Well, we have learned that property can go down in value.  Property can be an excellent long-term investment, especially if you can buy a house and rent out 1 or 2 suites.  However, you will have property taxes, maintenance, and renters to deal with.  When housing markets are hot this may work out very well for you, but if you have empty suites, you still have to pay your mortgage.  Owning a rental home means your fixed costs are pretty steady, but you need to make sure you can survive if your income drops.

Savings Accounts/Term Deposits – the most stable of all investments, these investments usually are among the lowest rates of return.  Canadian banks with insurance through FDIC guarantee up to $100,000 of your investments, and Alberta Credit Unions with CUDGC guarantee unlimited investment amounts.  This means if a bank or credit union ever goes under for any reason, your money is protected through its insurance guarantee program.  This safety is very appealing to people, especially those close to or already retired.

So, congratulations to those who are saving a part of their paycheque on a regular basis.  Make the most of it by investigating your investment options.  If you are in your 20’s or 30’s you may want to take advantage of your longer time horizon and invest in something a little more risky in order to get a better return.  If you are around 60, you probably want to protect what you have and get some growth rather than risking too much of it.

If you ever have questions about what investments you should use talk to a Certified Financial Planner.  The good ones won’t charge you for a plan, and they will give you an honest assessment of where you are and what you can achieve financially.  Jerry