Banking Redefined
Once you’ve got savings, you’ll absolutely want to invest. Compound Interest will always outpace the interest rate that you’ll be able to get on a savings account. Start investing as soon as you can.
STANDARD VS. HIGH INTEREST SAVINGS
See how higher interest adds up on $30,000 over 30 years.
$453
0.05% INTEREST RATE
$24,340
2% INTEREST RATE
Investing is not just for the rich of the world. If you are finding it tough to put away some investing money each month, try missing one coffee a week, one drink a week and see that this adds up. Take that figure and add it to your investment deposits. Missing one drink or one coffee is essentially $50 of purchases that you could be investing monthly – you’ll hardly miss it!
For example
$2.50 x 4 weeks = $10.00 on coffee,
$8.00 x 4 weeks = $32.00 on alcoholic beverages,
therefore you have found
$42.00
and surely you’d have an extra
$8.00 in your account to round this up to
$50.00
Investing small amounts of money is a great habit to get into and your money will add up over time. If you’re looking for more easy ways to invest with little money, here they are.
How can I Invest with Little Money?
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Set up small, monthly transfers from your checking account |
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Use a low-cost investing service |
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Brew your own coffee, invest your Starbucks money |
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Immediately invest any tax returns |
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Invest any raises instead of altering your lifestyle |
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Ask relatives for investing money, rather than other gifts |
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Understand the risk you are taking
Before deciding where to invest, you’ll need to first assess your personal risk tolerance. This is a fancy way of saying how much of your investment you can really afford to lose. If you don’t want to lose money invested and are not, worried about fast growth, you have a very low-risk tolerance. If your life wouldn’t be materially affected if your money fluctuated with the market volatility, your risk tolerance is would be aggressive. Risk tolerance is often dictated by your time horizon, it’s just a term that means the length of time you’ll hold a particular investment to retain the earnings needed to grow your funds enough for you to retire.
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Invest for the long-term
If you can, invest for the long term, investors who hold onto investments for more than 10 years will be rewarded with higher returns which offset short-term risks. That’s not to say this trend will continue, or that risk is ever totally eliminated. Risk never disappears, but time is on side.
If you can put money away for a long time period, then you can afford to have investments that are typically more susceptible to rising and falling. Your portfolio can contain equities that are typically more volatile compared to bonds.
Example of investing over the long term:
Let’s say we will be making a TFSA deposit of $5,000 per year for the next 20 years (which is equal to $100,000 deposited in total at year 20). With your money compounding annually at rates of 8% and 10% respectively, below you would have the following values in savings over the long term.
| Starting Amount | $5,000 | $5,000 |
|---|---|---|
| Year 10 | $78,227 | $87,656 |
| Year 20 | $247,115 | $315,012 |
| Year 30 | $533,502 | $817,061 |
| Starting Amount | $5,000 |
|---|---|
| Year 10 | $78,227 |
| Year 20 | $247,115 |
| Year 30 | $533,502 |
| Starting Amount | $5,000 |
|---|---|
| Year 10 | $87,656 |
| Year 20 | $315,012 |
| Year 30 | $817,061 |