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D i r e c t o r y

Invest Depressed

It rhymes.

The purpose of this article is to inform the naive and gullible person that thinks he's investing his money with his bank. Investing usually leads to depression if you research what returns you are actually making when you "invest".

There are smart folks, and there are investors. You decide which one you want to be.

An investor tells you that getting a GIC or putting money in mutual funds is a good way to save money.

Let's analyze this for a moment. Most GIC's gain about 2.5% all the way up to 4.5% per year. Mutual funds can gain about -%10 to +%10 percent. Rarely does a mutual fund investment make more than ten percent positive.

Let's assume one invests 10,000 into a mutual fund portfolio and 10,000 into a GIC that gains 4% per year. Let's assume that the mutual fund portfolio gains about 7%. This is a good year for a mutual fund and doesn't include all your loss years from previous decades (because mutual funds do lose money). You gain a total of 4% on one chunk of 10,000. You gain a total of 7% on another chunk of 10,000.

You invest another 10,000 into some higher risk foreign mutual funds that happen to lose 3% that year. This is normal - one does not hold all his eggs in one basket.

You've gained 4% on the first 10,000 which is $400. 
You've gained 7% on the second 10,000 which is $700.
You've lost 3% on the third 10,000 which is -$300.
You're total gain is $800 ($1100 - $300).

This does not include commission charges, brokerage charges. This does not include the time you spent monitoring the fund, phoning about, and visiting the bank.

Now if you would have put your money into a high interest savings account (current interest rates in canada 4%-5% at ICICI/Ing Direct/Altimira/Credit Union:

You've gained 4% on 30,000 which is $1200. 
The $1200 earned from the high interest savings account earned more than the typical mutual fund selection that only earned $800 after you consider the losses. Plus, you had to pay the asshole at the bank who manages your funds some commissions and fees each month for the mutual fund.

Wasting time

If your job pays you $20/hour and you spend 40 hours, you gain $800. So if you are spending more than 40 hours talking to your brokerage guy over the phone, driving to the bank, monitoring your funds - consider taking your money out of mutual funds and GIC's and just placing them in a high interest savings account (3%-4% interest current rate on high interest savings account).

And remember 40 hours sounds like a lot of time. But this is one year being discussed. Monitor your mutual funds once every week for about an hour? That's 52 hours in a year. You've wasted your time. Spend another 10 hours at the end of the year calculating your taxes on your mutual funds when income tax time comes around? That's 62 hours. More time wasted.

Stress and Risk

You don't have access to the money in your mutual funds if you have to buy a house. In the high interest savings account it is there for you. THe mutual fund causes you stress when you need access to money. THe mutual fund causes you stress when you lose three percent or lose 8 percent one month. You spend time constantly monitoring the fund and switching funds (if you can switch them, that is, without stressful fees and expenses).

Kill your Dog instead

You could have just killed your dog and saved $1500 on dog food. is it worth investing? You could have worked 40 extra hours with your employer and possibly got a raise for putting in extra hours - a far better investment than a mutual fund. Plus, you would have that $1200 extra dollars from investing your $30000 in a high interest 4% savings account. Plus you would have had access to that 30,000 for emergencies any time you needed it. 4% on 30000 in a high interest savings account totals $1200 per year. That's more than the $800 profit that was earned from several mutual fund easter egg baskets.

It won't take 40 hours to get a high interest savings account. There are no brokers and commissions to deal with. You don't spend money on gas driving to the bank finding a good GIC deal, and you don't spend money on brokerage fees.

Can't Some People Win?

There are exceptions to the above - if your job or love of life is to put money into stocks and mutual funds, you can some times make more than 10% per year. However, this article is for the general folk who walks into the bank looking for a way to save money.

Even saying the above, some of the most experienced investors can many times not make more than 10% per year. Some of the most experienced investors manage mutual fund portfolios - and there are thousands of mutual fund portfolios out there that do not come near close to making 10% gains each year (Fidelity, Mackenzie, Investor's Group, all sorts of mutual portfolios out there managed by professionals that never make 10% per year). This is proof that even experienced investors which it is their job to invest, cannot make 10% per year.

Not to mention consistency and stress.

It may seem hard to beleive that if you invest in a 4% high interest savings account that you will make $1200, whereas your mutual funds that make 7%, lose 3% and a GIC that gains 4% will make you only $800. This is why folks invest in mutual funds - because they don't do simple math. All mutual funds will eventually lose money. A GIC or high interest savings account will never lose money.

If you closely monitor mutual funds - how much time are you spending? Could you not be spending this time at work with your employer? And even if you closely monitor mutual funds and move them around to ride the charts - how are you going to gain more than 4% per year when several "managed mutual funds" controlled by experts at the bank never make more than 10% consistently? Usually making money on mutual funds is caused by pure luck, randomness, insider knowledge, and excessive time wastage.

Reality Check

You've read previously in this article that several mutual funds that are managed by the banks make and lose about 2%-5% each year, rarely touching 10%. So if an expert can make and lose 2%-5% per year, how do you expect someone like yourself, who is not an expert in mutual portfolios, to make more than 4%, the amount that a high interest savings account offers?

By the way - high interest savings accounts pay you monthly. Mutual funds do not pay you ever, until you withdraw from the mutual fund (at which point there are commission charges). It just seems absolutely ludicrous to invest in a mutual fund. If you do the math.

Are you an investor, or are you smart?

See also: Invest Your Stupidity into Scotiabank

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