Choose safe bets and keep your shirt
David Friend
Province
TORONTO — While it has never been clinically diagnosed, chances are you or someone you know has investment phobia, especially if you’re in the susceptible under-35 set.
Typical symptoms include a slight fever when discussing your financial future and extreme vertigo at the thought of mutual funds. Get over it.
By now you probably know that it’s never too early to start putting money aside, both for retirement and for the shorter term. Your grandma told you and so did your mother. But then the fear set in.
“A lot of people are scared of talking to a financial planner because the feeling is they don’t have enough money or it’s going to be very costly, but that’s not the case,” said Julie Sheen, vice-president of BMO Term Investments.
“In some respects your financial affairs are never as complicated as at the beginning, when you’re starting out and have all these options.”
Options range from buying a dream home and bringing up a few children to taking an extended trek across Europe with nothing but a backpack. All of them are going to cost you money that you probably don’t have today.
Sheen suggests that young investors start by putting their money in “buckets,” or separate savings, such as one for a house and another for a car.
“The one problem with having a single savings bucket is that once you get used to pulling money out for vacation it’s pretty easy to whittle down your savings relatively quickly,” she said.
Even if you have a lower-
paying starter position, which you expect will come with pay increases over time, there’s still an opportunity to invest for the short term.
In that situation “it makes sense to be building a non-registered savings because you’re in a relatively low tax bracket and can carry forward the RRSP deduction . . . and make the contribution later when your tax bracket is higher,” she said.
Mutual funds are a popular form of investment that, for young investors, must be chosen especially carefully, suggested Scott Ward of investment firm Edward Jones.
“A lot of times younger investors have the mentality, ‘I’m young and I can afford to take risks.’ If you lose your money in the market . . . you’re never going to make it back” once you factor in the time it takes to recover the full amount, he said.
Instead, go for safer mutual funds comprised of reliable companies.
“If you’re younger . . . you want to build a foundation first. Look for something with a good long-term track record that has been around for 10 or 15 years.”
Ward said to follow major companies by reading the business section of newspapers and websites and track what you consider to be smart and reliable investments. Ignore the “hot investments of the week” and favour ones that sell everyday products.
“People are very much creatures of habit and there are a lot of companies that make money because we do these things every day. These are quality companies that are going to be around selling products and services no matter how the economy does,” he said.