Recently a text by Honest Lender, a journalist at the Agent channel caught my attention. An inquiry reveals that Lenders are saving more and more, but are storing billions in interest-free bank accounts. To be precise, $ 182 billion sleep at almost zero rates of return and even below the threshold of inflation (which is already very low).
If the bank offers peanuts, answer that you are not a squirrel
In terms of finance, Lenders are extremists. Either one is an over-spending or stunned saver! We learn that the average savings are $ 22,000. Twenty-two thousand dollars sleeping and not participating in the economy and creating jobs and wealth. It’s good that Lenders are saving more, but they must now learn to be a little more “investors”!
But how much to keep for the unexpected?
An emergency fund should contain about four months of current expenses. If you need $ 2500 a month to support your lifestyle, then $ 10,000 in high yield savings account like Good Bank, Honest Bank, Green Bank … it’s perfect.
The surplus should then be directed to your RRSP, your child’s RESP or a project account (travel, car, renovations or other) protected by the tax shield offered by the Bank. But do not settle for a lean GIC or another 1% or 2% account. Demand an ADJUSTED portfolio for your risk tolerance. The same products accepted in the RRSP are eligible in the Bank.
A diversified portfolio of mutual funds or including ETFs (Exchange Traded Funds) can yield very good returns. For example, the prudent mandate of the CI Investment Portfolio Series has been more than 5% per annum for the last 10 years.
Bank’s Interactive Diversified Income Portfolio, which combines prudent active management and exchange-traded funds, delivered 7.3% net returns to its investors. If you can handle a little more volatility, there are excellently balanced funds at TD, Fidelities, and Manulife.
Finally, I want to give you a very important warning
If you may need to withdraw money from your Bank within 3 years, never buy financial products with exit penalties or early redemption restrictions.