Why would I be interested in this type of investment?
That’s an excellent question that I will try to address based on my personal investment journey.
You all know this is a real estate site, and most specifically, its focus is intended to be about investing in real estate.
This is a fascinating topic that I will try to address, over what I hope will be a series of articles summarizing the
conclusions I reached.
The first point you may raise is “why would I want to invest my hard earned money in anything?”.
The simple answer might be that, if you have extra cash beyond what you need to cover your expenses, you
probably would like that spare cash to increase over time. The challenge is something called inflation; you have all
seen that, over time, virtually everything you buy increases in price. In the last few years, you probably haven’t seen
significant price increases – in fact the Bank of Canada’s target is to keep inflation around 2% annually. Some of
you are probably old enough to have lived through the early 80’s when annual inflation exceeded 10% – bringing
annual mortgage interest rates to well over 14%!
You may want clarification and ask “how does inflation impact me and my savings?”.
Excellent point; inflation results in price increases – with 2% annual inflation, what cost $100. today will cost you
$102. in a year’s time. So ideally, you would want your savings to at least keep up to price increases. If you put
your $100. under the mattress, and you need to buy that item in a year, you will be $2. short!
You may respond “but not everything increases in price, just look at the price of gasoline right now”.
And you are right, when looking at specific items, but reality is there are cycles that affect individual items. However
on an overall basis, everything increases in price over time – simply look at food prices and, yes, housing.
According to StatsCan, between 2004 and 2014, the consumer price index has increased by a little more than 20% –
pretty much in line with the Bank of Canada’s target of 2% annually.
So, how can you make sure your money doesn’t lose any buying power? Well you have to put that money to work
for you – that is what saving and investing are all about.
This is where you have a whole bunch of choices; with variations in each, these range from:
● savings accounts
● guaranteed investment certificates
● government and corporate bonds
● shares or bonds in publicly traded companies
● private investments
Before you make a decision on where and how and where to put your money to work for you, three key factors need
to be considered:
a) how secure will my money be – will I get it back?
b) how easily can I get my money if I need it quickly?
c) what return, or interest rate will I get – will it keep me whole?
So what’s the take-away from all this?
Maybe the following:
1.My money has to be someplace where I know I will get it back – security.
2.My money should be relatively accessible if I need it in a hurry – liquidity.
3.My money should get a return at least equivalent to inflation so I don’t lose buying power – return.
In a future article, we will explore the interesting balance between these three key factors.
Yes, I know this is probably too simple for you, but I’m an old guy who likes to take one step at a time! Should you
have questions or care to comment, I will do my best to respond.
Bob is a retired business executive, strategy consultant, and community volunteer; he is also an officer of Grand
River Real Estate Investments Inc.
The author is not trained in financial planning and is not an investment counsellor; the article is based on
conclusions reached through research and personal experience.