Achieving your savings and investment goals requires a few simple steps:
- Step 1: Figure out what you want.
Savings goals are very personal and may change over time. Be it retirement, a vacation or your child’s education, everyone is saving for something. Write down these goals.
- Step 2: Devise a plan.
Get started by figuring out how much your bills cost each month (mortgage or rent, utilities, etc.) and what you have left. Set up a realistic budget that works for you and your family. Write down this budget.
- Step 3: Pay yourself first—regularly.
With your savings goals and budget in hand, determine what percentage you can reasonably save each month. When you get your next paycheque, don’t do anything until you have moved this money into your savings. Pay yourself first and do it often.
There are plenty of benefits to investing regularly, but here are two reasons it really makes an impact.
Dollar cost averaging
If you’re like most people, it’s easier to save frequently as opposed to saving up large lump sums. This is actually a savvy way to invest, and it’s all because of dollar cost averaging. If you invest $500 today, another $500 next month, and so on, you capture more market cycles—buying high and buying low. Over time, your costs are averaged out (as opposed to making lump sum payments, where the risk of buying high is greater).
In addition to capturing these markets cycles, saving regularly provides the discipline most people need to achieve their savings and investment goals.
Trying to “time” when to get in or out of the market is layered with many pitfalls. Most people make these decisions when emotions are running high. More often than not, fear and panic cause investors to exit the market when it has already crashed, and re-enter (at higher costs) well into recovery.
Decisions on asset allocation have the greatest impact on portfolio performance, while market timing contributes little to none, according to a famous study by Brinson, Hood and Beebower1. Trying to time your saving decision around market fluctuations also means increased trading, and frequent trading ultimately increases your costs. Having a plan to save and invest regularly will prevent you from making these emotional decisions.
Talk to your advisor and ask them to help you set up a Pre-Authorized Contribution (PAC) which allows you to “set it and forget it”. Timed with your paycheque, you may find you don’t even notice the money you’re now saving regularly.
Want to learn more about Pre-Authorized Contributions? Click here.
1 Brinson, G.P., Singer, B.P., & Beebower, G.L., (n.d.). Determinants of Portfolio Performance II: An Update.
The Compass Portfolio Series of mutual funds is managed by ATB Investment Management (“ATBIM”) and is sold through licensed distributors. ATBIM and ATB Securities Inc. (“ATBSI” - Member, Investment Industry Regulatory Organization of Canada; Member, Canadian Investor Protection Fund) are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Investor Services. ATBIM and ATBSI are licensed users of the registered trademark ATB Investor Services. Please visit compassportfolios.com for more information on the fee structure and MERs of the Compass Portfolio Series.
Compass Portfolios is a trademark of ATB Financial.