Starting to save

By: Winnie Go

If you’re just getting started with your investment plan, you may be intimidated by the challenge of finding the best way to get going. It’s not surprising considering all the options we have to choose from when it comes to investing. And if that isn’t confusing enough, throw in the fact that your current income is modest compared to what it will be later. And you’re trying to juggle paying off your student loans, covering rent and trying to put aside the beginnings of a down payment for your first home. Not to mention getting your career path on track. So it’s understandable if you don’t have a lot of money to invest. In fact, it might be hard to see how you can afford to invest at all.

Despite all of this, you’ve heard that starting to save and invest now will pay off in the long run, and that makes sense. But all you might be able to afford is $50 or $100 a month and you wonder how could that even get you to your goals. Sound familiar?

Hi, I’m Winnie Go, Senior Wealth Advisor with ScotiaMcLeod. Starting out is often the toughest part of your investment plan, but the first thing you should know is the earlier you get started, the easier and the faster you’ll be able to reach your goals. There are lots of ways to illustrate this. Let’s talk about one of them.

Our first investor, Jennifer, started putting away a $100 per month at age 25 and it grew to a nest egg of almost $250,000 at retirement. But Matt, our second investor, didn’t start putting away that same amount until the age of 34 and ended up at retirement with just over a $117,000 – less than half of Jennifer. That’s a dramatic difference. And once you start applying the same time advantage to a full range of investments across your investing years, the magic of long-term investing just multiplies.

The important thing I’d stress for anyone starting out is that you have a longer time horizon, and therefore more time for your money to work for you. So don’t get discouraged. Although you may not have as much money today, with some small steps and time on your side you’ll be a lot further ahead than those who wait until later in life to start investing. So now that you’ve seen the importance of starting early, let’s talk about the challenges of finding the money to actually start putting away.

Aside from food, rent and utilities, I’m sure you have some other goals you want to save for, like owning a motorcycle, furnishing your house or buying that flat screen TV. And retirement seems so far off, you might find it impossible to even think about it. As we’ve discovered, there are lots of needs and desires competing for how you spend, save and invest your money. And unfortunately, you have to make choices. But making these choices is a little easier if you take the time to develop the kinds of financial habits that will stay with you for decades to come. It's time to learn to pay yourself first and to put a disciplined approach to work in investing.

You don’t need to have a lot of money or to be invested in complicated investments. It’s easy. Just set up a regular automatic transfer – or ‘pre-authorized contribution’ – from your bank account and have that money invested every month. An advisor may start you out with a mutual fund where you won’t pay a transaction fee, and you’ll enjoy the benefit of investment diversification, managed professionally on your behalf, with dozens of different options.

As you start to earn more money it is important to revisit your investment options. This is where the valued advice from an advisor can really help. For instance, they can help you determine how much of your investment should go into an RRSP, if there is a better option to help you save for you main goal, like buying a house, and how you can get the best tax benefit. Not to mention expanding your investment options within your plan like balancing how much you should invest in GICs or mutual funds and how much cash you should keep.

Once you’ve identified your longer-term investment goals, with retirement sitting way out there at the furthest point on your time horizon, there are several factors you need to consider in putting together the right plan to reach your goals, such as your risk tolerance, time horizon and investment knowledge. For example, if you are someone who handles stress well and won’t worry too much if you see the overall value of your portfolio drop at any given point in time, it may make more sense to increase your exposure to stocks as they tend to outperform other markets such as bonds over time. That combined with your longer time horizon before retirement, are some of the many factors to take into consideration when you start investing. It might sound overwhelming, but that’s what an advisor is for. They’ll simplify the process for you.

But you can get started on your own. The tools and articles on this site will help you learn some of the fundamentals of investing including the importance of diversification and how starting early can really add up. In Big Ideas and Stay Current, you’ll find news and analysis from Scotia's thought leaders that will help you understand what's going on in the market and economy. Explore the site, and you’ll see.

Thank you for the time you’ve spent with me today. I hope that I’ve given you some things to think about and made the world of investing a little easier to understand.
Let me leave you with three key things to remember: start saving and investing now – no matter how little you can afford when your financial circumstances improve, make sure that’s reflected in the amount you’re saving. Seek and use the advice of an advisor. They’re there to get you started and to keep you on track.