To those who don’t invest, the thought of choosing the right institution, making investments and taking on risk can seem like a daunting and futile endeavour. The downside to not investing, however, is the loss of years of potential investment growth.
A recent survey by Tangerine Investments found that over a third of Canadians surveyed do not have an investment account. Only four per cent of non-investors have ever seriously considered opening one and when asked why they don’t invest, the majority (70 per cent) said they don’t have enough money.
“Unfortunately there’s a misconception out there that you need to be an expert with a lot of money to start investing, and this simply isn’t true,” said David McGann, Director of Tangerine Investments.
A generational gap
The survey found notable differences between adults aged 26 to 36 and adults aged 40 to 54 in terms of attitudes towards investing. Younger adults, for instance, are more likely to have considered opening an investment account. On the other hand, older adults were more likely to say that they don’t have enough money to start investing.
Regardless, adults in their 20s and 30s are in a good position to start investing and benefit from compound growth over a longer period of time. Consistent investing over decades can have a significant impact on retirement savings. For instance, $200 contributed monthly over 30 years at a five per cent annual rate of growth would equal over $160,000 in retirement income.
Starting small is key
It should come as no surprise that Canadians cited lack of funds as the main reason why they do not invest. But the best way to ease into investing is by starting small. If you don’t know where to start, speak to a financial advisor or look into your bank’s investment brokerage services, or even an online discount brokerage. Each option has its pros and cons, and choosing one is the first step towards a lifetime of investing, and essentially, extra money in your pocket.
It’s critical that you choose an investment account that best suits your needs, and there are various types from which you can benefit. For example:
- Tax-Free Savings Account: Despite its name, your TFSA is not actually a savings account. It’s more of a savings vehicle where you can hold different assets or accounts. TFSAs are best suited for long-term investments, but it’s certainly a good place to put your money if you plan on buying a home.
- Registered Retirement Savings Plan: Having an RRSP is not only a great way to save towards retirement, but it can also be a way to add to your down payment when you want to purchase a home. If you’re a first-time home buyer, you can withdraw up to $25,000 from your RRSP through the Home Buyers’ Plan (HBP) for your down payment. And if you’re purchasing the home with your spouse, you can both withdraw $25,000 each from your accounts under the HBP, meaning you could possibly have up to a total of $50,000 towards your first home. However, you will need to repay the money you withdraw, typically within 15 years.
- High-interest savings account: High-interest savings accounts are usually only available from online banks. And since they typically have lower carrying costs in comparison to the Big Five banks, they can offer you a much higher interest rate. Some people are hesitant to use an online bank, but if you become a member of the Canadian Deposit Insurance Corporation (CDIC), you can fully insure your money up to $100,000.
- Guaranteed Investment Certificate: GICs are some of the safest investments available. They offer a guaranteed return in a fixed amount of time but since this is literally a no-risk investment, the return is quite low. If you need access to your money earlier, you will likely pay a hefty penalty.
Proper budgeting can help Canadians find room to invest as little as $100 per month towards their goals. The best way to do this is to pay yourself first. Choose a monthly amount that makes sense for your budget and have it automatically withdrawn into your investment account on a regular basis. People often like to align this with pay periods so it just feels like they have a slightly smaller pay cheque.
No matter how you decide to invest, the trick is to simply start, and the younger you are, the greater the opportunity to watch your money grow. With a new year just around the corner, now is the time to set new goals. Whether it’s saving for a house, a child’s education, retirement, or all of the above, investing over the long term can help you get there.