Debt-Free Forever by Gail Vaz-Oxlade (the beginning after the end read novel .TXT) 📕

wife is desperate to redo the kitchen. The list goes on and on and on. You squirrel away a few bucks and then, BAM, something knocks the money out of savings and into your pocket. Oops! How You Should Invest: You need to keep some money accessible for emergencies, but you would definitely benefit from locking the rest up where temptation can’t steal it. Think three-to five-year GICs and government bonds. You shouldn’t use anything too liquid (i.e., easy to sell) because the temptation will be to cash out and spend the money.

Very Committed

You get it. You’re determined to save. You may not have a lot to start with, but that’s not going to stop you. You’ve set up an automatic debit from your chequing account to a retirement savings account somewhere that makes it very hard for you to get to the money. And every six months, you increase the amount you’re saving by 10%, 15%, or 20%, so you keep growing your savings. You’re learning all about investing. Ditto educational savings accounts, and whatever else will help you reach your goals.

How You Should Invest: When choosing investments, you’re in the same boat as “passionately committed,” so read on.

Passionately Committed

You’re so committed to reaching your goal that you’ve actually taken an extra job and are directing all the money you’re making from that job to your retirement savings. You’re a fiend when it comes to using coupons, shopping on sale, cutting corners. And every penny you save goes immediately into your savings account. Yup, you don’t “save” (the verb) $10 without applying that $10 to your “savings” (the noun)! Whoo-hoo. You’re a train and everyone better get out of your way because you are determined to achieve your goal.

How You Should Invest: Whether you’re very committed or passionately committed, your investment options are wide open, and should be tempered only by your knowledge and investment time frame—or how long it will be till you need to start using the money.

Knowledge you get, right? If you can explain the investment to your sister, mother, best friend, brother, and still want to buy it, go ahead.

Which brings us to time horizon.

INVESTMENT TIME HORIZON

How long you’re planning to invest has a big impact on the investment alternative you might choose. Pick the wrong timeline and you could find yourself a little sad when cash-out time comes.

The longer you have until you will need to use the money—the longer your time horizon—the more time your investment has to even out its return, taking care of the volatility risk, but the more time inflation has to eat away at the value of your money. The trick is to match your time horizon to the investment you are choosing.

What does the time horizon of your investment have to do with what investment you choose? Well, it’s like this:

Fixed-income investments like certificates of deposit (GICs and term deposits) have no volatility and the return is guaranteed. You can’t lose your principal (the money you initially invested) and you know exactly what you’ll earn in interest on the day your certificate matures. The same holds for a bond or mortgage investment that is held to maturity. (If you’re actively trading bonds or mortgages, they behave more like equities, responding to market conditions.) So it doesn’t matter whether you go long or short, you’re guaranteed your return as long as you hold to the end of the term you choose.

Equities—things like stocks and stock-based mutual funds—are a whole different kettle of fish. They can be very volatile depending on their nature, some offering more price stability and others offering more opportunity for growth. Either way, they don’t work as short-term investments since they may be at a low just when you need the money and must sell them. They work as long-term investments, where you have time to ride out the highs and lows and average out your return.

Less than three years is considered a short-term investment horizon. Three to nine years is considered medium-term, and 10 years or beyond is considered long-term. Short-term investors should avoid putting the majority of their money in investments where the risk of losing that money is greater. Choosing fixed-income investments that generate a steady return while offering a higher level of security is a better idea. Medium-term investors can balance their investment portfolios using both equity and fixed-income alternatives. Long-term investors have the luxury of time and can, therefore, choose an asset mix that is weighted more heavily with equity investments. Since equities have historically outperformed all other types of investments over the long-term, people with an investment horizon of 10 years can benefit from the potentially higher returns equities offer because they have the time to ride out the natural volatility associated with the market.

As you get older, or as your personal circumstances or economic conditions change, and as your investment horizon shortens (yes, you’ll get older and closer to retirement, so your time horizon will go from 20 years to 10 to 5 and so on), you’ll need to rebalance your portfolio’s asset mix.

GAIL’S TIPS

The Canada Deposit insurance Corporation [CDIC] provides deposit insurance on eligible deposits at member institutions up to $100,000 per registration, which means your principal is safe regardless of what happens to the bank. So your RRSP deposits are covered separately from your unregistered GICs, and your personal bank account is covered separately from your joint account. Deposits must be in Canadian currency and payable in Canada. Term deposits must be repayable no Later than five years from the date of deposit. For more info, visit the CDIC website—www.cdic.ca.

MINIMIZING STUDENT DEBT WITH SAVINGS

While saving for retirement is something most of us think about—at least from time to time—there are other reasons to save, including making sure we can help our children avoid a huge amount of student debt when they head off to the halls of higher learning.

Back when my children were born—so about 16 years ago—the RESP