Over the past few weeks I have been asked several times about making money work for you.  There are only two rules to creating wealth. 1) It is not how much you make, but how much you keep!  2) Make sure what you keep, is working as hard as it can FOR you!  Pretty simple rules.  Like most things in life, very simple to say, quite another thing to put into practice.

Rule one is about NOT spending everything you make, (especially not spending what you can borrow), and Rule 2 is about stuff we don’t get taught enough about.  Often the information is hard to find.  Most people tend to think rule 1 is enough.  That’s why the common wisdom is that we keep our savings in a SAVINGS account.  Banks love people who do this.  The bank will even pay you to keep money in a Savings Account.  They might even pay you (today) 1 whole percent.  That means if you have $5,000 in Savings, they will pay you $50.00 every year.  Nice!  (said with dripping sarcasm)

The problem is this thing called INFLATION.  It deals with how much money it takes to buy something from year to the next.  Lets say we want to buy a fancy Fridge.  Today (2018) the Fridge costs $5000.00.  At the end of the year, inflation is 2%.  You need to buy the fridge in 2019.  No problem.  You have the $5000.00 in your Savings Account and you get  a years interest, so you have enough to buy the fridge, you think. If you had $5000 in your savings account on Jan 2018 and got 1% interest you would have $5050.00.  But since Inflation was 2% the same fridge in 2019 now costs $5100.00.   You are $50.00 short.  The interest was not enough to even keep your buying power the same.

The Savings Account would have to pay you 2% just keep the same buying power.  Right now, it is tough to find a bank that actually pays 2% a YEAR.  Some of the online banks are advertising 2% or a little more.  But check for how long that rate is good for!!   Many times it is just a hook to get you in.  After 6 months the rate will drop back. If you are keeping your money in a Savings Account, your money is so lazy it is actually falling behind.

What are the alternatives??  Here is where it gets up to you.  How much are you prepared to do, to make your money work for you??  It needs a coach and trainer.  The first simple step is to go to a couple of banks, and check out the rates on GIC’s.  (Guaranteed Investment Certificates)  These are a step above the Savings Account.  For these I would recommend checking out CREDIT UNIONS and not just banks.  Credit Unions often offer better rates.

GICs are easy to get.  They usually require a minimum of $50 -$100 to start.  You are putting the money in for a fixed amount of time, (the Term) and are going to keep it there, the whole time.  Terms vary from a few months to several years.  Normally the longer the term the higher the interest rate.  Most GICs are in the 2%-3% range these days.  The Guarantee is for the PRINCIPLE ONLY.  So you can not get out less than you put in.  You can get the money out quickly if you need it before the term is over, but it might cost you some of the earned interest.  These are things you need to ask about.  The conditions will vary from institution to institution.  SO ASK!!  This is your money working twice as hard as in a Savings Account.

The next step up from GICs are Mutual Funds.  There are hundreds of places to buy Mutual Funds.  Every bank, insurance company, and small investment adviser, has access to Mutual Funds.  SO DO CREDIT UNIONS!!  Credit Unions are just not allowed to advertise the fact.  (Banks don’t like the competition.)  The thing to remember is that Mutual Funds are based on some other form of investment.  In most cases, particular types of Stocks, or other assets, such as Real Estate.  They are safer than individual stocks, because a Fund would have a diversified holding of any asset class.

For example. there might be an Automotive Mutual Fund.  Instead of just holding GM, Ford, or Toyota, it would hold shares of many different automotive companies to spread the risk.  Mutual Funds do have a tendency to follow the Stock market.  If the whole market is going up, so do most Mutual Funds.  The return, or money earned by the mutual funds are dependent on your “RISK TOLERANCE”.  The lower your risk tolerance the lower the return.  Mutual Funds allow you to give your money to someone else, and have them manage it.  Don’t forget that you will be paying this person, for this service, out of your Mutual Fund earnings.  They get paid, even if the Fund goes down.  This is by far the most common form of investing.

I truly believe that if you want to make a good return on mutual funds, you need to understand how they work, and understand what the advisor is talking about.  Mutual Funds are structured as a “Buy and Hold” for the long term investment.  You won’t be going in and changing funds every couple of weeks.  Most Funds will only allow you to make changes once every 6 months.  You need to be looking at Funds that consistently make more money than GICs.  They need to have a low (<2% MER or Management Expense Ratio) and be based directly on some other asset class, NOT A BUNCH OF OTHER MUTUAL FUNDS!!  I prefer Funds that pay out monthly, rather than quarterly or yearly.

The next level of investing really means work and attention from you.  That is direct investing in Stocks and, Bonds, or Real Estate Investing.  To be successful at either of these, you will have to work and learn.  Stock investing requires some luck, but also a knowledge of how to read charts, and a basic understanding of financial statements.  Then there is the specialized knowledge.  Things like how many grams of Gold per ton makes a realistic mine.  What are Crypto Currencies, and is Lithium worth investing in.

If this seems like too much work, there are Dividend Paying stocks.  Dividends are normally only paid out by well established solid companies.  These stocks do go up and down, but this normally does not affect the dividend payment.  Dividend stocks can have yields (similar to interest) between .5% and 14% per year.  Most of my RRSP investments are in Dividend stocks.  Dividends are paid either monthly, quarterly, semi annually, or yearly.  I list the top yielding dividend stocks that pay monthly and quarterly under the Resources tab of this web site.  there are a couple of Blog posts on dividend stocks as well.

Real Estate investing requires that you understand the different ways to make money in Real Estate.  Flipping houses or owning income properties for example.  Real Estate investing is an active investment.  Whether you are doing the work yourself, or dealing with property managers and contractors, you will be on the move a lot.  I have found over the years that the more I work at my investments, the better they perform.  Creating Wealth can be done in a variety of forms. (I don’t go into being a business owner.) Which ever one you pick is up to you.  Picking something that interests you, and that you enjoy, makes the effort seem less like work.  If you have specific questions, feel free to email me.