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Smart investing: Regular instalments pay off!

Posted on Friday February 05, 2021

Smart investing: Regular instalments pay off!

Many New Brunswickers have gotten into the habit of accumulating their annual savings in a chequing account until time for their RRSP or TFSA contribution in January or February. Although this is very common, our experts recommend that you make regular payments and invest throughout the year. With the help of François Clavette, Wealth Management Advisor at UNI in Dieppe and Mutual Fund Advisor at Credential Asset Management Inc., you'll learn everything you need to know about investing through regular instalments.

The purpose of regular instalments: Improving performance

By investing a large amount in a single transaction, you're completely at the mercy of the market conditions on the day of purchase. “The main advantage of regular instalments is that you buy on a regular basis throughout the year. By doing so, you generally get a better price per unit rather than investing all at once since you benefit from market fluctuations instead of being dependent on them,” Mr. Clavette explains.

As well, when people let their money lie dormant for several months, all the interest they could have generated during that time is lost. For example, although the stock market may be up at the time of your transaction, it could go down right afterwards. This is the kind of fluctuation you'd prefer to avoid!

François Clavette, Wealth Management Advisor at UNI in Dieppe and Mutual Fund Advisor at Credential Asset Management Inc.

How exactly do instalments work?

The process is simple - and much less painful than having a tooth pulled! There's certainly no reason to be nervous.

“We set up an automatic transfer, always on the same day, depending on the amount of funds available. The interval between transfers can be weekly, bi-weekly, monthly, etc. Investment products are then purchased automatically, whether they're mutual funds, bonds or guaranteed investment certificates,” Mr. Clavette explains.

What fees are associated with these transactions?

Rest assured, just because the transfer goes through your account every month doesn't mean you'll pay more fees.

Our advisors are well aware of this issue among investors. “Management fees are a percentage of the total amount invested and have nothing to do with the investment frequency. So, you can make weekly instalments without paying any additional fees.”

What if something happens to disrupt your plans?

What happens if you lose your job or if the arrival of a new family member forces you to review your finances? No problem, you can “increase, decrease or stop automatic transfers whenever you want. There's no advance notice to give, and the initial payment frequency can be resumed at any time.” A regular instalment is therefore not a definitive commitment, but a well-considered choice.

If you have to withdraw your money because of an unexpected event, the impact will depend on the type of investment you chose. “In the case of mutual funds, your money is never frozen and you can access it at any time. With guaranteed investments, it depends on the term. For example, funds can be frozen for one, two or five years.” That's why you should select the type of investment carefully after an objective assessment of your needs, your investor profile, your retirement goals and any unexpected situations that may arise.

What types of products should I invest in through regular instalments?

The only products excluded from this method are MLGIs (market-linked guaranteed investments). All other investments, including mutual funds, are eligible.

According to Mr. Clavette, regular instalments are an excellent way to invest in an RRSP or TFSA because “you contribute almost without realizing it. Ideally, you start young and schedule the payment for each paycheque. Even if you start with a small amount, such as $25 per week, the long-term results can be impressive.”

Regular, but also responsible!

Do you want to contribute to social progress and environmental conservation without neglecting your performance? No problem!

All mutual funds are available with regular instalments, including responsible investments from Northwest Ethical Funds (NEI). All NEI funds meet ESG criteria that are among the strictest in the world, and many are focused on specific causes, such as inclusive governance and the environment.

How should you determine the amount of your instalments?

Do you feel able to save more than $25 each paycheque?

The subject comes up in discussions with client members, but the answer to this question is very different for each one. “The rule of thumb is that a client member without an employer pension fund should save about 10% of their gross salary for retirement,” Mr. Clavette says. “Few people succeed in the first few years of employment, but by gradually increasing their savings rate, many client members reach as much as 15 or 20%.” Certain factors affect this proportion, such as the birth of a child, the loss of a job, or a new employer with a pension fund, which reduces the amount available for savings.

A good practice to follow is to consider revising your regular instalments on the day your salary increase takes effect.

What kind of return should you expect?

Everyone hopes for the same thing: higher returns. However, playing fortune teller is a tricky business. Returns depend largely on which investments you choose, as well as the economy and your risk tolerance.

“At the moment, mutual fund returns are attractive, while guaranteed investments are less attractive because interest rates are very low. But even in a climate of uncertainty, you can always balance risk against the kind of returns you’re looking for.”

Whether you put your money into a single account for retirement or divide it between several investments for a variety of projects, such as buying a car or a boat, your money can grow until you decide to make use of it.

“As I often tell my clients, we all pay bills, but we also have to think about paying ourselves... ideally first!”

To start contributing through regular instalments, make an appointment with a UNI Advisor, who will guide you and work with you to develop a strategy adapted to your situation.

Savings and investment management: Mutual funds and related financial planning services are offered through Credential Asset Management Inc. Mutual funds, other securities and securities-related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered trademark of Aviso Wealth Inc.

Online brokerage services are offered through Qtrade Investor, a division of Credential Qtrade Securities Inc.

This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell mutual funds.

NEI Investments is a registered trademark of Northwest & Ethical Investments L.P Credential Asset Management Inc. Credential Securities, Qtrade Investors and Northwest & Ethical Investments L.P. are all wholly owned subsidiaries of Aviso Wealth Inc.

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