Women and Money Part 2
Ladies, it's time to talk about your money. Follow this 6 part series for valuable insights you need to know.
When you are investing to build wealth, there are a few key financial strategies that are the absolute “must haves” for any investment plan.
- Pay yourself first
- The power of compound growth
- Dollar cost averaging
- Asset allocation as a critical ingredient
- Tax saving opportunities
- Long term view
Let’s take a look at each one of these and how they can positively impact your financial health.
Pay Yourself First
Paying yourself first is an absolute rule you need to impose on your pocketbook. As responsible women, we tend to pay all the bills first, then look after family needs. We even give more money to charity on average then Canadian men but….who pays us?
It’s important to visualize your ultimate goal and then let us help you determine how much money you will need to achieve it. Once you have a plan in place, then commit to saving a set amount on a regular basis and treat it just like one of the bills.
Pay yourself first….then spend what’s left. The long term results could astound you – let’s take a look at some stats
Dollar Cost Averaging
Investing regularly also helps you to take advantage of dollar cost averaging.
The concept of “buy low and sell high” may sound attractive, but is difficult to follow due to the unpredictable nature of short-term market prices. To take advantage of these changing prices, one of the simplest yet most effective investment strategies you can use is known as dollar cost averaging.
Rather than making a lump sum investment of $600.00 on January 1st, a monthly investment of just $100.00 over 6 months helps buy more units when they are “on sale”, resulting in a lower average cost.
This concept of investing regularly, within a properly diversified portfolio can really increase the impact of your savings.
Asset Allocation as a Critical Ingredient
You’ve probably heard the terms “Asset Allocation” and “Diversification” but what do they really mean and how can they help you succeed in building wealth?
The concept is simple, rather than trying to pick individual investments that will take you to the top, proper asset allocation is a critical ingredient that can really smooth out the impacts of market moves. By diversifying your investment portfolio across the right variety of asset classes, investment styles, geography and market capitalization options – to maximize the level of return you will get for the market risk you are comfortable with to achieve your goals.
What type of investments should you own – Should they generate interest – dividends or capital gains? Each of these types of return is taxed differently so, it’s important that you understand all of it and invest the right portions of your investment into the right type of investment – again, depending on your goal.
Tax Savings Opportunities
We’ll also sit down and review your personal tax returns to help identify tax deductions that you may not have even considered – What would be the impact of maximizing your RRSP contributions now instead of February? Are there income splitting opportunities for you? Maximizing tax deductions and tax credits can go a long way to building your wealth faster.
We’ll also help you look at the entire variety of tax-deferred investment options that are available today – like RRSPs, Corporate Class structures and Tax-Free Savings Accounts. Why pay tax when you don’t need to?
- Interest vs. Dividends vs. Capital Gains
- Maximize tax deductions
- Take full advantage of tax credits
- Capitalize on tax deferred growth
- Understand tax advantaged investing options and where they fit in your plan
The bottom line is that taxes can really impact your investments and your plan. Including tax planning into your plan is something we truly take to heart, on your behalf.
And of course, invest with a long-term view. Following the lengthy bear market that ended in February 2009, many investors asked themselves how best to proceed. Do I pull my investments out? Do I sit tight and wait? History has shown that consistently the best advice has been to stay the course and stick to your long-term plan.
Since 1950, following some of the worst 12 month periods of performance on the S&P/TSX, the market has made solid gains just 12 months later with only one exception. And, within five years, the markets were up significantly—meeting and exceeding long-term return expectations.
Many of the strongest returns in the markets occur in the period immediately following a sharp decline in equity markets. In order to take advantage of those returns, it’s important for investors to continue to focus on a long-term plan, stay the course, and remain invested.
Those who exit the markets, even for a short while, risk missing great opportunities when they recover.
We can’t predict with certainty where the markets will go in the near-term, so investing for the long-term has always remained a key element in the advice we provide to clients.
In the final analysis, it’s not about how much money you have or what rate of return you earn, it is about you and what you want your money to do for you in your life.