Wednesday, October 3, 2007

My friend’s investment strategy

My friend Patrick has got some extra money saved up this quarter – extra on top of RRSP contributions and regular planned savings. We got to talking about how he could invest that money. I was very surprised at a couple of things.

First, when he was saving up the money over the last few months it’s just been sitting in his regular Major-Canadian-Bank savings account. It’s still sitting there right now, earning hardly any interest.

Second, he has never invested in anything outside of his company group plan. (And of course his house which he lives in)

It’s easy to see what was wrong with the first part. At his regular savings account he is earning like 0.5% interest, whereas online accounts offer from 3.75% (ING direct) to 4.25% (President’s Financial). These accounts are easy to use online and he can access his money any time once he decides what to do with it.

What’s wrong with the second part? They say it’s good to invest in group plans because the fees are lower. Yes, and I contribute through my company plan as well. However, I am not making that my whole investment strategy.

There’s been a lot of talk about mutual funds not worth the expenses they charge. Also, only investing in a company plan limits his options to something like 3 Balanced Funds, 2 Income Funds, 2 International Funds, and 3 Growth funds all from Fund Company X. That’s not a lot of options for his life’s savings.

I guess I thought he’d have it more figured out because he’s older than I am.