When the cost of living goes up and market conditions get rocky, it can feel risky to do anything with your money other than leave it where it is. And although that can feel like the safe thing to do, it may actually keep you from reaching your financial goals faster.
By learning the key differences between saving and investing, understanding your needs and goals, staying consistent with your plans, and speaking with a financial advisor, you can put into practice solid saving and investing strategies that will keep you feeling confident in your future.
Learn the general guidelines for saving and investing.
Depending on what you want to achieve, there are times when it’s more appropriate to save money, and other times when it’s more appropriate to invest. To understand which option is right for you, it’s best to start with some general guidelines for saving and investing:
- If you need funds within the next 3 years, you should put money into a savings account or cashable GIC. These low-risk, low-yield options help you maintain the principal amount you have set aside while providing you with some interest.
- If you need funds 3-5 years from now, consider purchasing a number of GICs and “laddering” them. You can also consider putting money into corporate bonds and other conservative investments. In either case, investing your funds within a Tax-Free Savings Account (TFSA) helps you grow your money without paying capital gains tax, and you can earn interest, too.
- For any goals you have that are more than 5 years away, you will likely see better results if you invest your money in mutual funds, exchange-traded funds (ETFs), and other securities.
These general guidelines can help you understand whether saving or investing is right for your needs and goals. Try using this when you outline your needs and goals.
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Understand your needs and goals.
Generally speaking, you want to save money for short-term needs and emergency funds and invest money for longer-term goals. You can get a sense of how this might work for your financial plans by reviewing common expenses and applying the guidelines listed above.
- This ensures basic needs – like food, housing, and daily expenses – are covered. As these are regular, ongoing expenses, you need immediate access to cash. Consider using a savings account.
- Emergency funds. Setting aside money for a rainy day helps you feel more confident and provides you with the support you may need if large, unexpected expenses are suddenly required. Saving up cash is a great way to start an emergency fund, especially because they can occur anywhere in the next 3 years.
- Long-term goals and dreams. This includes everything from buying a home to your child’s post-secondary education to your own retirement. Depending on your age and financial situation, some of these goals may be further than 5 years away. If so, investing in GICs and mutual funds will help you grow your savings over a longer term. Meanwhile, if important goals like these are just around the corner, consider cashable GICs and cash, instead.
Now that you understand what goes into deciding whether to save or invest and which options are more appropriate for your needs and goals, it’s time to make actionable plans.
Stay consistent with your investments.
Though it can often be difficult to find the money to fund your needs and goals, there are some tried-and-true methods you might find helpful. Here are just a few:
- Pay yourself first. The easiest way to save towards goals is to imagine them as bills that have to be paid each month. You can either choose to manually set aside a certain amount of money each month for these needs and goals, or you can set up automatic, pre-authorized contributions to your savings account, emergency fund, TFSA, RRSP, and more. If possible, try making these payments before you put money towards anything else. This ensures that you stay on track with your plans, while also taking care of everyday finances.
- Use work benefits to their full potential. If your employer offers a retirement savings plan or pension, take advantage of this as it will come off your paycheck before it arrives in your bank account. This method can be thought of as another form of paying yourself first and makes planning for retirement easier over time.
- Time in the market versus timing the market. It’s tempting to think you can predict and outsmart market dips and rebounds, but you’ll have better returns in the long term by sticking with well-diversified investment portfolios. Because, when it comes to reaching your investment goals, it’s not about how you bought or sold individual investments. It’s about how much time you were invested in the market.
- Don’t underestimate the power of compound returns. Your returns will build as your investments grow.
Remember, your financial situation will likely change over time. If you find that you can’t keep up your regular contributions at the same rate anymore, try reducing them. You can even stop them altogether, though it’s easier to increase your payments when times are better than it is to start again from scratch. Keep your long-term investments on track by periodically rebalancing them. Most importantly, get the right advice when you speak with a trusted financial advisor.
We’re here to help.
Everyone’s financial situation is unique. The financial advice you receive should be unique, too. Speak with a Coast Capital advisor to find out more about how knowing when to save and when to invest can affect your financial plans. We’ll take the time to understand your specific needs and goals and help you craft a plan for achieving them. Visit a Coast Capital branch, book an appointment online, or call us at 1.888.517.7000.
Coast Capital Savings Federal Credit Union provides advice and services related to deposit, loan, and mortgage products. Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and services related to segregated funds, annuities, and life insurance products. Worldsource Financial Management Inc. provides advice and services relating to mutual funds. Mutual fund values change frequently, and past performances may not be repeated. Commissions, trailing commissions, management fees, and expenses may all be related to mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.
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This article is provided for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, fees, and other investment factors is subject to change without notice and Cost Capital Savings Federal Credit Union is not responsible for updating this information. All third-party sources are believed to be accurate and reliable as of the date of publication and Coast Capital Savings Federal Credit Union does not guarantee the accuracy or reliability of such sources. Readers should consult their own professional advisor for specific financial, investment, and tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
