Tag Archives: where to invest

RRSP Deadline and Choices

It’s the month before RRSP deadline for 2021 contributions. A couple of things you should remember and consider:

If you’re in debt, focus on paying off your debts, instead of savings. I’m not saying take the next decade with that, but stop everything else and get a single-minded focus on paying off your bills. Then go back and start with all that money you’re no longer paying to your car, line of credit, or credit card and start saving with amounts nobody else can match.

If you just put your RRSPs into savings, you’re getting maybe half a percent interest. That isn’t going to work. There’s something called the Rule of 72. Take your return divided by 72 and that’s how long it takes for your money to double. So at half a percent, it’ll be 36 years. Better returns such as at least 8% will double your money in nine or so years. Of course, your age, how often there’s time for the money to double, and how much risk you can tolerate versus your age, other assets, and when you need the money matters a lot.

A big question is why don’t people invest properly and just put it into savings.

Researchers in California some years ago, led by Sheena Iyengar, set up tables to sell gourmet jams in front of a grocery store. One booth had six different jams available, the other had a wider selection of 24 jams on display and available for tasting. The purpose of the experiment was to determine whether quantity to choose from had any impact on how many sold. And did it ever – but in the opposite way: 30% of those who stopped at the six-jam booth made a purchase, but only three percent at the bigger booth made a purchase of some kind! We prefer to make quick decisions but that becomes impossible with 24 selections so we freeze and don’t make a purchase (or decisions) at all. The same holds true for investments. People want a choice but not an over-whelming choice or people will freeze and “think about it” without making a decision at all.

But then – not making a decision is still a decision.

Lessons From Last Week’s Book Signing

Every time I do one of my (rare) book signing, I learn a lot. If it isn’t an insight, it’s what I need to explain better, more or differently. From last week at Mosaic Books, it was:

Making your teenager a millionaire: Your teenage relative won’t do it because you tell them and YOU know it’s guaranteed to work. They won’t listen to you and you can’t want it more for them than they want it for themselves.

A teenager isn’t likely to even listen to you. But maybe they’ll “get it” from the two page Money Tools book chapter. They have to read it and understand compounding works better the younger the person investing. You also have to remember that saving $9,300 is like asking you to come up with a few million bucks. Teenagers dream of $300 bucks and a BIG shopping trip to the mall next week. They don’t dream of $9,300 or anything past next month.

That’s where you come in: The chapter is two pages. When they ‘get it’ and work through the compounding math on their own where $9,300 becomes $18,600 in 7 years and $37,200 in 14 years without them doing anything at all – they’ll get committed. At that point you can also help. Maybe you can match what they save, maybe you can add 10 or 20% to what they save or whatever you can afford to boost the odds it’ll happen.

If you contribute anything at all, the deal should be that the investment account is in joint names. Your money is in there and then it’ll assure they don’t take out anything.

Not knowing this or doing this when I was early 20s or so is now one of the top 5 lifetime regrets of mine – for obvious reasons. And I’ll post the more detailed “how to and where to” invest again.

Spend the $20 on the book – at least make them read it and understand it – think about some seed money to get started or to keep going. THAT is starting a family legacy in ways nobody else does…

It’s RRSP Deadline This Week

Ah, the annual week of feeling the pressure to contribute to your RRSP with the hundreds of TV and radio ads is upon us. But stop a second and think:

Last week the National Post/BMO survey came out showing where we put our money once we’ve invested in an RRSP or a Tax Free Savings Account and 57% of all the money is in cash and 23% is in GICs. WHAT?

The no-service banks have spent millions of dollars this month to guilt you into contributing to your RRSP and you probably fell for it. But 80% of the money stays there and makes you no return? That’s crazy! At half a percent interest, your money will double in 140 years! Even if you’re getting a 1% GIC return, it doubles in 70 years. Is that when you’re retiring?

Banks are like airports. You go to the airport in order to get someplace. You don’t go there just to hang around for a few weeks. Banks are the place to park your money for a bit, to have a chequing account, and your emergency savings account. Banks are not the place to do investments.

Think of it this way: You donate your $5,000 RRSP money to a teller or someone in a fancy office that’s on commission. But banks keep less than 10% of it in cash. More than 90% is lend right back out on a 4% mortgage, a 6% car loan, or 20% credit card. THEY sure know what to do to make the money grow and it’s almost all free money.

It’s the best legal scam in the world: You get half a percent – they lend it out and make between 4 and 20 percent. That’s great if you‘re the bank – lousy if it’s you. If you own a clothing store, what’s your biggest expense? It’s getting clothes into inventory so you can sell them at retail. If you own a gas station, what’s your biggest expense? It’s getting the gas at wholesale into the tanks that you can then sell at a profit. But when 80% of the money isn’t making you a return, it’s as though you’ve given the banks free money to lend out, or the clothing store free inventory they can sell!

To add insult to injury, you probably have debts that you’re paying interest on. On one hand you’re locking up that $5,000 at no return while paying out that same 4 to 20% with the other hand. What’s the best way for lenders to make sure you never pay extra or pay off your debts? It’s by keeping you broke. When you pay money into your RRSP you have a lot less money to pay on your debts. That’s a no-brainer since you don’t have an unlimited income. So the banks not only get free money to re-lend, they’re also making sure you won’t become debt free for a long time to come – and that locks in the profits in interest you’ll pay for a lot more years.

Someone please tell me how it makes any sense to save while you’re in debt. When you retire you’ll have some savings and an equal or larger amount of debt – makes no sense. Get out of debt and then you can save some serious money and really quickly – money you used to send to everybody else at 4 to 20% interest.

Since we’re going to run out of time, next week I’ll give you some investment tips, tricks, and alternatives to actually make your money grow instead of helping the banks to grow their $10 billion a year in profits.