Browsing Tag

Investing

What Benjamin Franklin Taught Us About Compound Interest

We can all learn something about saving and investing from Benjamin Franklin. Upon his death, in his will, he donated one thousand British pounds to both Boston and Philadelphia to be used to help apprentices to start their own businesses. The interesting part of the request was that he wanted the money to be invested for 100 years. After the 100 years was up, the Philadelphia investment had grown to $172,000.00 and Boston’s fund ended up with $2.3 million.

This goes to show you how important a role compounding interest can play in your investments. The more time you have to invest, the more your money will be able to work for you. As well, this lesson from history shows us the importance of choosing investments wisely. Obviously Boston did a lot better job of selecting investments than did Philadelphia.

If you are unsure of what you are currently investing in, or if you haven’t started to save for your retirement, I would encourage you to book an appointment with a Financial Planner at your local financial institution and build a strategy for retirement and your other savings goals. The sooner you make a plan and stick to it, the better off you will be.

For more detailed information on the full story about Benjamin Franklin, check out this article.

January 24, 2010

Book Reviews

Want To Know How To Retire Rich?

How To Retire Rich; Time Tested Strategies To Beat The Market And Retire In Style by James O’Shaughnessy

How to Retire Rich is a an easy-to-read book about investment strategies that will help you to reach your retirement goals. The author, James O’Shaughnessy, is a mutual fund manager and an experienced investor who has studied the history of the market for the past 45 years. Based on in-depth research, he has developed solid investment strategies and has shared them in his book.

He uses four different couples at different life stages to illustrate how the various investment strategies can be streamlined for every situation. By doing so, it makes it easier for readers of all ages to identify with what he is saying.

Some key points outlined in the book are that investing in the market is extremely important if you want to retire rich. Instead of being afraid of market fluctuations, the author says we should be afraid of losing purchasing power if we insist on investing in cash and other “safe” investments. Although knowing that your principal is guaranteed may give you peace of mind today, knowing that your money will be worth so much less in the future should motivate you to consider other options.

According to O’Shaughnessy’s research, the New York Stock Exchange has gone up 71% of the time in the past 45 years. He continuously emphasizes that the only way to retire rich is to invest in the market and that informed investors realize that day-to-day gyrations mean almost nothing in the long term. The important thing is to not get overwhelmed by current market fluctuations but to focus on the future and understand that the value of your investment will ultimately grow over the long term.

An interesting point in the book is that successful investing runs contrary to human nature. The author says “The reason most people don’t retire rich is that it’s simply too hard to keep their emotions in check and stay focused on the long term.” Once we are able to accept that the value of our investments will fluctuate and discipline ourselves to stay invested, we will be set up for success and will ensure that we don’t lose the purchasing power of the money we have worked so hard to save.

I would highly recommend that you read this book if you are interested in learning how to develop a solid investment strategy for your retirement. O’Shaughnessy provides practical tips on choosing individual stocks to create a portfolio. He also discusses the benefits and disadvantages of mutual funds, and provides recommendations based on historical research. It’s a book that will encourage you to stay invested in the market even in the event of a market crash or an economic downturn. Check out this book and start implementing the strategies today.

December 1, 2009

Investing

How Much Should I Contribute to my RRSP?

We are all becoming more and more aware of the importance of saving for retirement. Unfortunately, many people have no idea how to go about it. Some people say it’s best to try to max out your RRSP (Registered Retirement Savings Plan) contribution space each year. I disagree. Instead, I recommend contributing enough to take advantage of a lower tax bracket, and then contributing to a TFSA (Tax Free Savings Account) or a non-registered investment account (IA) to supplement additional retirement savings.

I say this because the main advantage of contributing to an RRSP is the tax deduction and the tax-deferred growth. If contributing $4000.00 in a given year brings you to a lower tax bracket, there is no need to contribute anymore than that since you have already maximized the tax benefits.

On the other hand, that doesn’t mean that you shouldn’t be building up your retirement savings in other ways such as by contributing to your TFSA (up to $5000 of additional contribution space is added each year) and/or contributing to a non-registered investment account.

Once you’ve determined how much you need to contribute to your RRSP, if you still have funds remaining that can be used for retirement savings, I would suggest building up your TFSA, because you don’t have to calculate your capital gains or losses, and more importantly, you don’t have to pay tax on your earnings. It is also much easier to withdraw from a TFSA if the need arises.

Before deciding on how much to contribute to your RRSP, I would highly recommend checking out http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html on the Canada Revenue Agency website to see exactly how much you should contribute to maximize your tax benefit. After that, if you still have room in your budget, consider putting some money into a TFSA and then an IA and set yourself up for success.

For more detailed information on RRSP related topics, check out my RRSP Page. You can also check out my e-book about RRSPs.

November 27, 2009

Investing

Read The Free Chapter From Multiple Streams of Income

I’ve just started reading Multiple Streams of Income by Robert G. Allen. So far I am really enjoying it. The first chapter is all about the importance of consistently saving. He talks about how one dollar can be used to start growing a money tree and the author includes many charts indicating potential growth over the long term.

His main point is that anyone can become a millionaire if they are disciplined enough to save and invest wisely. Like I emphasized in my last post about investing when you’re young, you don’t have to have a lot of money to start investing. The best time is to start now.

Instead of me writing a lot about this chapter, I would recommend that you check out this link: http://multiplestreamsofincome.com/ and read the chapter for free online. To get to the free chapter, click on Keyword Search on the left hand side of the site. From the drop down menu, select Free Chapter and click the Go button. I bet you will never think of investing the same way again! The author emphasizes in a very practical and profound way just how important it is to save for tomorrow today.

October 18, 2009

Investing

Start Investing When You’re Young

This is written especially for those of you who have just finished high school or university. I highly recommend that you start to tuck some money away for your future. Whether you want to save up for your first home, a trip around the world, or for retirement, the time to start saving is now. I know it’s hard to be thinking about retirement when you’re so young, but believe me, time goes by really fast and before you know it, you will be thinking about your retirement plans.

If you’re like me, you ignored this advice and didn’t start saving until your mid 20s. Although it’s better than nothing, it’s ideal if you start paying yourself first when you’re young. I emphasize this because your investments’ growth potential increases dramatically the longer you keep your funds invested.

For example, if you invest $10,000.00 when you’re 18 years old and don’t touch it until you are 65, assuming an average rate of return of 7%, the value of your investment will be around $240,000. By contrast, if you invest the same amount at age 25, assuming the same rate of return, the value at age 65 will be approximately $150,000. So, by investing 7 years earlier, the end result is about $90,000 extra dollars in your pocket at retirement.

Although it may seem difficult or even impossible to start saving for retirement at such a young age, I can guarantee that it is worth it and you won’t regret it. Many financial institutions will allow you to start investing with a minimal amount of money and then you can continuously build up your accounts by setting up preauthorized payments that are within your budget.

You don’t have to have a lot of money to start investing. Don’t put it off until you are older. It’s time to start investing today as the more time you spend in the market, the more growth you will see and the more likely you will be able to achieve your goals.

October 16, 2009

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