Business and Operations
Losing sleep? Don’t stash your money under the mattress
By TD Waterhouse
By TD Waterhouse
Feb. 18, 2009 – Under the mattress? In the freezer? In the cookie jar?
Canadian investors report they are anxious about finances, but stashing money
in different places throughout the house is never the best investment strategy,
according to TD Waterhouse. Here are recommendations on how to invest this year
from Patricia Lovett-Reid, the company’s senior vice-president.
Although the eighth annual TD Waterhouse RSP Poll showed
that only two per cent of Canadian investors have considered keeping their
money under the mattress, many respondents have lost confidence in their
ability to manage their own investments over the past year, with 24 per cent of
investors agreeing with that statement in 2008 versus nine per cent in 2007.
"With 2008 being one of the most stressful trading
years in history, we know that investors have more financial worries than
ever," says Lovett-Reid. "People shouldn't let market volatility
dictate their long-term financial planning and they should speak with an
advisor who can help keep their retirement plan on track."
When it comes to how Canadians are feeling, approximately
one half admit to having enough anxiety about their finances to keep them up at
night (at least occasionally) and nearly 90 per cent of investors acknowledge
having at least some financial worries. Topping the list of financial worries
is their declining value of investments (22 per cent) followed by paying bills
and managing day-to-day expenses (19 per cent), and saving money for retirement
(14 per cent).
"I encourage people to try and find a happy medium with
their spending habits. Don't save until it hurts but don't spend like there is
no tomorrow," says Lovett-Reid. "Even when times are tough, there are
ways to ensure that you are empowered and in control of your financial future.
One way that people can take control of their financial
future is to maximize their RRSP contribution. Contributing the maximum amount
possible into an RRSP may significantly reduce an individual's income tax
payment for that year. Also, inside the RRSP, the investment has the potential
to enjoy tax deferred growth over the years. Lovett-Reid suggests that
investors short of funds could consider borrowing money to contribute to their
RRSP and then paying down the loan with their tax refund.
Canadians tempted to keep money "under the
mattress", are neglecting the long-term impact of inflation on their
purchasing power. For example, 10 years from now $1,000 will only be worth $820
at a 2 per cent average annual rate of inflation. Investors with longer time
horizons should consider focusing more on long-term investment return potential
rather than short-term volatility risk. Working with an advisor to set the
right asset allocation for a portfolio can optimize its potential returns
without exposing it to inappropriate levels of market risk.
The TD survey showed that women (54 per cent) are more
frequently kept up at night by financial worries than men (41 per cent). Women
are more likely to worry about meeting and managing day-to-day expenses than
men (24 per cent versus 14 per cent). Men, on the other hand, are slightly more
likely than women to worry about the declining value of their investments (23
per cent versus 21 per cent). Forty per cent of Canadians aged 65 to 69 are
kept up at night by financial worries, compared to 51 per cent of people aged
35 to 49. People 50 years of age and older are more concerned with the
declining value of their investments (34 per cent) than those aged 18 to 49 (11
What Canadian investors have done due to the recent
financial downturn is alter their spending and investing habits (49 per cent).
The most cited spending and investment behaviour changes include postponing
major purchases such as a house, car or furniture (52 per cent), charging less
on credit (45 per cent) and still making non-essential purchases but spending
less on them (39 per cent). Nearly an equal number of Canadians (38 per cent)
are completely cutting out spending on non-essential purchases.
Women have changed their spending behaviour more than men.
Nearly 50 per cent of women have completely cut out spending on non-essential
purchases, whereas only 29 per cent of men have made the same decision. Older
investors are more likely to have switched to less risky investments like GICs
(36 per cent of 65 to 69 year olds versus 16 per cent of 35 to 49 year olds).
The Toronto-Dominion Bank and its subsidiaries are
collectively known as TD Bank Financial Group. TD Bank Financial Group is the
sixth largest bank in North America by branches and serves approximately 17
million customers in
key financial centres around the globe.