The main
incentive for saving is to have resources to use in the future. Some however save with
little notion of future use. The incentives to save vary considerably by
individual, time of life, and locality of residence. In many circumstances
conservation is closely related to saving. This discussion is mostly concerned
with saving value, or money. Some Notes on Investment
Strategies are given after the following discussion on savings.
A major difficulty
faced by all who try to save is the conservation of value over periods
of time. Inflation, changing exchange rates, taxes, and dishonest practices,
etc. are a few of the phenomena that present challenges to the saver. Savings
can also take the form of increased equity in a
home, business, or other asset. A
fraction of the equity in a home can be realized after age 50 with a so called CHIP or Reverse Mortgage. See:
www.cip.ca
1. Usually the first
consideration is security, i.e. will the value of the savings be
present when you seek them at some later date. Banks and other institutions
attempt to prevent theft, have instruments such as savings and current
accounts, guaranteed investment certificates (GIC's), etc.
2. If the savings are in the
form of money, they should earn during the time they are not in use by
the saver, i.e. the money is loaned to a borrower who pays interest for its
use, and a contract to repay the loan. There are a variety of financial
instruments that tend to have higher yields with higher risks. The usual
recommendations are to use low risk low yield instruments(savings accounts,
GIC's, Government Bonds, etc) for the portion of your portfolio that your feel
should be protected. The higher yield securities with higher risk can form the
portion that you are willing to gamble. These includes various types of stocks,
Mutual Funds, etc. A full discussion of the various types of securities is
beyond the scope of this note.
3. As much as possible the
earrings from savings should be sheltered from income tax. A Registered
Retirement Savings Plan (RRSP) is a commonly used instrument. It appears as a
tax shelter (but is not) in that taxes on the deposits and subsequent earnings
are charged on withdrawal. In the
1.
Step
Back, resist the urge to make dramatic changes in your portfolio even in times
of market volatility.
2.
Review
your investment Objectives. It is important that your investment strategy
reflects your short and long term objectives
3.
Take
a long term view rather than trying to pick the time when the market appears
favorable. "Its time in the market, rather than market timing that's
important".
4.
Diversification
of your Investment Portfolio is one of the simplest ways to reduce risk.
5.
Investing
on a regular basis is one of the ways to smooth out market fluctuations.
6.
Hold
positions in global markets to reduce volatility.
1.
Have
realistic expectations about the rate of return that you may achieve. Focus on
the long-term within your savings objectives. E.g. A net rate of return of 5%
will make an annual investment of of $1000 grow to 33066 in 20 years (see F/A function
for this type of calculation.)
The advantages of Tax sheltering such as is available with a government
approved pension plan (e.g. an RRSP) which tends to almost doule avilable net
yield during accumulation becomes obvious. One must always consider the
negative effects of inflation when assessing long term
growth.
2. Stay committed to the
strategies above and allow the long term nature of the markets to work in your
favor.
For an Individual Home Owner one of the most effective forms of
savings in
The reason is that while the mortgage payments in
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