Many misconceptions circulate regarding personal finance.
Whether they come to us from social networks or from an uninformed relative, it is better to have the right time to be able to make more informed choices.
Overview of five common errors.
1. Confusing saving with investing
When you confuse savings and investment, you run the risk of not adopting the right strategies according to the objectives pursued.
“Saving is putting money aside to achieve a short, medium or long-term goal,” says Véronique Di Vito, Senior Manager, Life Insurance and Wealth Management, The Co-operators.
This can be saving for a down payment on a property, to buy a car, to take a trip, to build up a safety cushion, etc. Savings accounts and Guaranteed Investment Certificates (GICs) are two common vehicles for depositing savings.
Investing is buying investment products that will allow our money to grow. We are thinking here of retirement planning, for example.
“In these turbulent times, it can be tempting to turn to ‘safe’ or ‘less risky’ investment options, but this strategy comes with the risk of considerable shortfall in the long term”, warns Veronique DiVito.
Conversely, a “riskier” investment might produce better returns. In any event, it is best to consult a professional who will suggest a strategy adapted to our investor profile and our needs.
2. Contribute to your RRSP in February
You can contribute to your RRSP all year round, within the limit of your individual contribution limit. It is even recommended to do it by direct monthly or bi-weekly transfer, and not in a single payment once a year before March 1st. By contributing regularly, your money will grow longer.
“The date of March 1 is used to determine the tax benefits that will apply to income from the previous year,” says Ms. Di Vito.
3. Invest everything in guaranteed investment certificates (GICs) because they are safe
It is true that GICs have been posting attractive returns for several months, considering the volatility of the stock market. But these investment vehicles are not made for everyone and do not meet all needs.
“Because they are very safe, GICs are suitable for those who want to protect their investment. You can invest for periods ranging from 30 days to 10 years, some GICs are redeemable and others are not,” says Véronique Di Vito.
Therefore, one might not have access to his money if he needs it for an emergency.
You should also know that GIC gains are 100% taxable, compared to capital gains, which are 50%. Since they are low risk, these investments will also generate a lower return than investments that are more risky. Here once more, a financial services professional can suggest the strategy suited to your investor profile.
4. Not getting insurance because you’re young and single
When you’re young, in good health and you don’t yet have children or family obligations, you don’t think it’s necessary to have insurance.
However, not only are some compulsory – such as car insurance – but insurance can cover us in the event of unforeseen events such as a loss, theft or civil liability suit. Not having taken out home insurance and being robbed… that’s an experience you don’t want to live.
5. Investing in a mutual fund allows you to have a sufficiently diversified portfolio
“Today, the range of mutual funds available is very wide. When you’re not a professional in this area, it’s not easy to determine if your portfolio is sufficiently diversified or if you’re vulnerable to losses in certain sectors”, remarks Véronique Di Vito, who recalls that developing a A financial plan that suits us suits our lifestyle and brings us closer to our financial goals is key.
Because in terms of investment, a good knowledge of one’s risk tolerance and investor profile is essential to make good decisions.