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What is the best investment vehicle for a small amount of saving?

Q- I have some savings of about $15,000 and am not sure what is the best investment vehicle for me to save this money for the medium to long term. Savings accounts have so little interest, but mutual funds these days seem so risky with not enough interest to make it worthwhile.

A-You are absolutely right; Savings accounts, GIC and even Mutual funds pay very little income these days. Infect the after tax income you get in most cases is lower than average historical inflation rate which is 3.3% in Canada. In this low interest environment my best advice is to pay off your debts first before considering any investment. When it comes to paying off debt you should certainly pay off the credit cards first because they charge the highest interest followed by line of credit and then house mortgage.
If you are in a happy situation where you have paid off all your debts and even house mortgage now you are ready to make investments. In my opinion GICs and Saving bonds are not good options just because after tax income is negligible or may even be negative. Some people will argue that you must have a small portion of your portfolio in cash for contingencies. But in my opinion you can achieve that cushion by having an unused line of credit, as long as you have strong fiscal discipline.
Depending on your risk tolerance the Equities especially the dividend paying blue chip stocks can be good option. But you need considerable time, knowledge and experience to buy the right companies. If you are thinking of investing in mutual funds you have to be aware of the costs associated with buying, selling and holding the mutual funds. One simple way to invest in mutual funds and play the market with minimum cost is to buy the ETF, the Exchange Traded Funds. The ETFs go up or down in value depending on the average of stock market. Management fee is lower in ETFs so you may realize more benefits over time.
For long term investing you may like to consider Seg Funds, short for Segregated Funds. Seg Funds are structured like insurance contracts and they are creditor proof. They offer death and maturity guarantees and you can reset them when the market goes up. Also you can name a beneficiary for Seg Funds which helps you avoid probate fee after death.
I recommend you talk to an experienced investment adviser in your area who will work with you and guide you the investment options available for your risk profile and size of portfolio. Your investment adviser will be able to guide you through various options including equities, mutual funds and Seg Funds.
Also good for long term investing is some exposure in real estate market through REIT, Real Estate Investment Trusts. REITs provide diversification and can be bought and sold on stock exchange. They provide steady flow of income which is usually higher than dividend paying stocks, simply because distributions from REIT are before tax income.
Key to successful investing is to gain sufficient general knowledge about various investment products so that you can ask smart questions from your investment adviser . If you need help with finding a right adviser please write to ssharma@brontebay.com


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Mr. Sharma is a management accountant with over 33 years of experience in small business. He has been engaged in independent accounting practice since 2003. With MBA degree in IT Management and CPA, CMA designation he believes in creating value for the clients. Mr. Sharma has been actively involved in imports, exports, retail, construction and IT consulting. He has written articles in the “Canadian Immigrant” magazine on taxation and accounting for small business. He has served as director on the boards of York Regional Community Foundation, Community Living of York South and Surrey Foundation. He is a member of CAPS (Canadian Association of Professional Speakers), Rotary Club of Richmond Hill, Markham Board of Trade and Richmond Hill Chamber of Commerce.

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