Should You Invest Now?

There will be no small number of people looking to save every penny they can get their hands on right now, in the midst of a lending crisis that has permeated even the most disciplined economies in the world. Putting money aside – squirreling would be the best way to put it – is certainly quite tempting as things stand, not knowing when the recovery will really begin in earnest. In order to be sure of having money in the months to come, it is perfectly sensible to put some by. On the other hand it could be said that if you don’t invest a bit now, there will never be a better time.

Sure, there will be some reluctance on the part of any of us to put money where it might lose value, and the fact of the matter is that investing does carry that risk – “remember, investments can go down as well as up” ring any bells for you? Without that kind of fluidity, there would be no chance of making a bit of money on the stock market, or through any kind of investing – and you would be better off just putting it in a savings account. What we can be certain of is that several investments are now at as low a value as most of us can remember – and ripe for the buying cheap.

Award-winning book Invest Now is jam-packed with timely information and timeless advice for the beginning Canadian investor. To purchase a copy, visit Chapters Indigo or buy online – Invest Now: A Canadian’s Guide to Investing

No-one with any knowledge of such matters will tell you that your investment is guaranteed to increase in value, and less still will you be told that you will get an instant return, so it is worth having a savings plan at the same time. The chances are, however, that a small investment will have an initial small return, and can even act as a dry run for investing in greater amounts. As rules of thumb go, “Only invest what you can afford to lose” is a good one. It will allow you to learn the ropes in a less pressurized context.

Of course, investing can be a daunting prospect. If you stand to make any kind of money at all, the chances are that it will carry a frisson of nerves as you watch and wait for the right moment to sell or stay in. The chances are that on your first investment you will be tempted to sell as soon as you realize any kind of profit on the deal. While there is every reason to be happy at turning a profit, it is worth taking into account that people who have been playing the market for longer will stay in longer than those who haven’t. The reason for this is that they have learned to recognize when a stock will keep rising.

It is worth purchasing a guide to investment because these are invariably written by people who have done it and been successful. Warning signs that might go ignored by the novice will be covered in these guides, as will those false alarms that make first time investors panic and get out. When you are investing for the first time, it is good to have this reassurance.

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These days you will hardly find an investor without having at least one mutual fund. Most of us never pay any attention to mutual fund fees, which can be very confusing and hard to grasp. Many of us do not realize how much of our returns can be evaporated by these fees. I consider one of the best features of mutual funds is that fund companies camouflage fees as a percentage of assets.

There are 3 basic categories of mutual fund fees – management fees which is known as MER, sales fees and special fees. I will discuss only MER because regardless what type or class fund you buy, MER is a built-in feature and it will be always there.

MER stands for Management Expense Ratio and expressed as a percentage of fund total value. MER is made of sales, administration, marketing, legal, accounting, reporting and portfolio management costs and charged directly to the fund, thus reducing the value of your investment. You will never see any statement or transaction or invoice or you will never write a check to pay MER as fund companies deduct this cost from funds per unit value everyday, making it invisible and hard to track. MERs can run from ?% to over 3% or even more. Let’s say a fund charges an MER of 2.5% which may sound harmless but when you look at in terms of real numbers, it looks scary and hard to believe. Suppose you have $100,000 in a mutual fund which charges 2.5% MER. Assuming you are 30 and will have this $100,000 invested till you reach 70. How much is your cost? The answer is a whopping cost of $100,000 ($100,000 * 2.5% per year for 40 years) I used very simplified calculations and omitted many other factors. Remember, there are other costs and taxes to pay as well. Be a smart investor by educating yourself and avoiding fees and expenses. There are variety of options these days and always do your homework before investing and seek help from someone whom you find knowledgeable and trustworthy.