Today's economy

Making saving simple

By Kevin Press,

Comments (1)

Dollar-cost averaging has two advantages: It turns saving into a habit and it keeps you from trying to time the market.

Make saving simpleBruce Sellery has the same thing for breakfast every morning: “Cottage cheese, yogurt and bran flakes,” he told me earlier this year. “I’ll probably eat that same breakfast for the rest of my life.”

Sellery writes about the value of habits in his latest book, The Moolala Guide to Rockin’ Your RRSP. “When I trimmed up and lost about 10 pounds 10 years ago, I changed some fundamental things about how I eat,” he said. “I reduced my carbs significantly and increased my protein at breakfast. I have had the same breakfast every single day since 2002.”

One of the best ways to keep on doing what’s good for you is to eliminate bad choices. In Sellery’s case, that’s a kitchen pantry full of croissants and pancake mix.

It’s a principle that applies well to money. I made one of the best financial decisions of my life 17 years ago. I arranged for a monthly deduction to be made from my bank account and for that money to be invested in a portfolio of mutual funds as part of a registered retirement savings plan (RRSP).

As a result, I have never rushed to make a contribution before the RRSP deadline. I have invested a predetermined amount every month since 1997. Over time, my salary has risen and so I’ve increased that monthly contribution accordingly. I can say without reservation that I’ve saved more as a result of this approach.

This isn’t just about saving, though. What I’m describing is referred to as dollar-cost averaging. Its real power lies in the fact that I’ve invested the same dollar amount each month. So when the value of the funds in my portfolio was up — as it was during the technology bubble in 1999 — my money bought fewer fund units. When their value was lower — think 2008 — I bought more.

It’s a deceptively simple idea. By committing to a dollar figure, and to regular saving, I have ignored market volatility. I’ve never timed the market. The truth is I really don’t think about it that much. The money has been coming out of my pay for so long that I don’t miss it.

This is not to suggest that we can ignore our retirement savings. It’s important to pay attention to your investments’ performance, rebalance your portfolio when necessary and have regular discussions with your financial advisor about how you’re tracking relative to your plan.

Sellery puts it this way: “I want you to be engaged and looking at the performance of your investments, for example,” he said. “But I don’t want you to have to think about how to make the contribution itself.”

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Brian Poncelet,CFP on

Dollar cost averaging looks good on paper but does not work in the real world. Hopefully, Bruce understands why.

First lets look at the good things…saving every month who can argue that?

Ok, now let’s look at returns. Lets say you start with $100 and put away $100 every month and the market goes down 20%. In a few years even with a modest returns you have a good looking portfolio.

Now lets look at $100,000 the market goes down 20%, unless you are putting in at least $1000 per month or more
modest returns really will not help you much.

Bruce is big on RRSPs however never forget CRA owns part of your portfolio. So after inflation,taxes etc. You need at least 5% net just to break even. What I don’t see is an exit strategy in retirement. The government is always changing the rules, as an example is a claw back of OAS. If you put too much in your RRSPs you get hammered at retirement. Also the government tells you how much you must withdraw and increases this every year.

(look at RRIF minimums on CRA’s website)

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