How to properly save money?

[TurnedTheCorner]

Originally Posted by Slava

I'm not a pure mutual fund guy, but if you are making monthly contributions and buying stocks every month or biweekly you are spending way more on transactions (for the most part). I do understand why people don't love funds, but that blanket statement isn't good advice for every investor.

I don't want to derail this thread, but can this be elaborated on more? I thought that dollar cost averaging by making regularly timed contributions was a solid foundation for building savings?

[Kavvy]

Originally Posted by firebug

RBC is smart to have that option - most of the other big 6 don't have that.

Check out the rates of all of the other RBC savings accounts and you will see what I mean.

Touche

[Slava]

Originally Posted by TurnedTheCorner

I don't want to derail this thread, but can this be elaborated on more? I thought that dollar cost averaging by making regularly timed contributions was a solid foundation for building savings?

You're right, but when you buy a stock you pay a fee on that transaction and that's way more than the MER on a mutual fund (which is what people don't like about funds, to generalize). There are other factors though:

- if you're buying stocks you should buy a board lot at a time, which is 100 shares or 1000 if it's under $1.00. Most people are not saving a monthly amount that makes that feasible.

- theoretically you could save up for a few months and buy stocks, which makes sense....except that you lose the effect of dollar cost averaging, and that savings account is basically paying nothing during that time.

That doesn't mean that there aren't some exceptions and special cases, and I do work around these things with clients. It's just that the "mutual funds are bad" argument is largely propagated by companies selling other financial products, and frankly you have to take that with a grain of salt for that reason.

[TurnedTheCorner]

But the MER on a fund doesn't change whether you do contributions at regular intervals or on a more "lumpy" basis though...right? I was thinking more along the lines of regular mutual fund contributions than stock contributions. And is the MER still deducted as front-end or back-end, or is it a recurring fee? Sorry for the questions, thanks for the refresher.

[Slava]

Originally Posted by TurnedTheCorner

But the MER on a fund doesn't change whether you do contributions at regular intervals or on a more "lumpy" basis though...right? I was thinking more along the lines of regular mutual fund contributions than stock contributions. And is the MER still deducted as front-end or back-end, or is it a recurring fee? Sorry for the questions, thanks for the refresher.

No, the MER is the fee to run the fund and includes all of the expenses to do so. It's not contingent on how much you put into it, as it's a percentage. It's not a front or a back end fee exactly, but comes off the return before you see it. So if you get your statement and it says that you earned 10% over the past year then the return before expenses would be somewhere around 12-12.5%. Most funds have an MER around 2-2.5% depending on how much you're investing and the type of fund (there are some much cheaper options).

The fees that can be front/back end fees are separate, if they're involved at all.

Making regular contributions to a mutual fund is a good idea IMO. Again that's not for everyone, but it generally is a good starting point to build savings and to earn a better rate of return than a high interest account.

[pepper24]

The biggest thing for my family has been not changing our lifestyle that much as we have gained more income. Our expenses have actually decreased over the years with paying off our home and living close to the core has cut on auto expenses. Just because you can afford some big purchase items like sports cars, big home etc. doesn't mean you have to.

Our family is just as happy with staying the norm and keeping life simple. I sleep well at night.