I know there is always a lot of hype about investing, especially today. Where to invest, how to invest – I find it daunting myself. But I am reminded of what Warren Buffett, the most successful investor in history, once said:
“I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.”
There is one thing you can be sure of about investing, before you look for opportunities- – get rid of your debt. I don’t think there is better advice than that. It’s based on some 43 years of experience we have at Credit Canada, www.creditcanada.com, where we provide counselling and comfort to those who are struggling with debt and trying to manage their money intelligently.
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Now, I am not talking about mortgage debt. Let’s face it that is usually a long-term process. I am talking about high interest debt such as credit cards. If you have covered off your credit card debt, then I believe it could be a good idea to invest. But investments are often risky, and if you can’t afford to lose, you can’t afford to play the game. Put it this way, you can’t afford to take on risky investments anyway.
So if you are ready to play, you need to learn the rules.
Rule #1: Understand the basics. This means knowing the terminology, knowing the pros and cons and knowing the degree to which you can smartly invest – otherwise known as your risk tolerance.
Rule #2: Get yourself a financial planner you are comfortable with. This means shopping around. You want someone you are comfortable with so that when you ask what you think could be a potentially stupid question, you do not feel embarrassed. Don’t be shy about asking any question, it is your money. If you are looking for a financial planner, check out the Financial Planners Standards Council www.fpsccanada.org .
Rule #3: Be patient. This is hard for all of us, me included. But again, we might look to Warren Buffett for some wisdom; investing is a long game and you need to go through the ups and downs of the markets and hang in for the long haul.
The most important thing to remember is to educate yourself, and not be afraid to learn everything you can from your financial planner. No question is too dumb.
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Dear Brenda:
Great question and certainly one that even the most savvy financial planners don’t necessarily agree on. So here’s the thing…you owe $37,000 and you will be inheriting $35,000 which you are trying to determine if you should pay back your debt or invest in an RSP.
According to author David Trahair, in his newly published book ‘Enough Bull’, the best strategy is to get rid of debt especially at 19%. The reason of course is that at 19% your interest calculated annually is $7,030. Now of course you could get approximately $10,500 back if you put the money in RSPs which could be used to pay down the debt. However consider this. You now owe $27,000 at 19% and the following year interest on that debt alone will be $5,130. The interest accumulating on your RSP will probably be no more than 5% in these times (if you’re lucky) which would net around $1,750. If we assume you will be struggling some time to pay off the remaining debt then you are in a situation of having to pay a large amount of interest at 19% on the remaining debt. If you are only paying the minimum payment every month, it will take years to get rid of that debt. That does not even get into the stress of having a debt hang over you. So my advice to you is to get rid of the debt, cut up the card and invest all money that would have been used to service that debt into RSPs. And more importantly if you use a credit card, make sure you can pay it in full at the end of the month!
Good Luck Brenda!
Laurie Campbell
Executive Director
phone 416-228-2526
fax 416-228-1164
toll-free 1-800-267-2272
lcampbell@creditcanada.com
A not for profit charity since 1966
Visit: http://www.crediteducationweekcanada.com to find out about all the exciting events that will start on November 2nd, 2009. See you there!
I am inheriting approximately $35,000 CDN and I have a $37,000 Credit Card Debt at 19%. Do I pay off the credit card amount immediately or do I invest $35K into RRSP (unused amount that I can use) and pay down credit card amount with tax savings (approximately 30% refund).
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