Investing Choices affecting Saving?

Have you ever had the following run through your head:

You: I should get my RRSP money in as soon as I can.

You: Ah, but I’m really not sure where to put the money.

You: Doesn’t matter just get it in.

You: But I kinda hafta decide what I’m gonna buy before I open up the RRSP. Will it be a mutual fund, or a GIC or a segregated fund, or will I buy the index?

You: If you wait to decide, you’ll never put the money in the account.

You: Yah, but I can’t decide, so I’m going to wait.

Could it be that the reason we don’t save is because with so many choices on how to invest we’re stymied. Yes it could.

Sheena S. Iyengar of Columbia University and Mark R. Lepper of Stanford University have found in their research that people are less likely to make a decision when they face too many options.

They set up sampling booths at a grocery store offering some customers 6 choices of jam and other customers 24 jars of jam. While only 40% of passersby stopped at the booth featuring 6 different types of jam, 30% actually bought the product. The larger display drew more tasters: 60%. But here’s the kicker: only 3% actually bought the product.

It seems that having too much choice seems hampers our ability to make the decision on what to buy.

Hey, if you can’t decide what you should buy with your RRSP dollars, you can always go with a Savings Account option to get the money in before the deadline. Once that decision is out of the way you can then focus on what you’ll invest those dollars in to make them grow.

In choosing your investments for your RRSP make sure:

1. You know what you’re buying

2. You’re staying true to your investment personality (your ability to handle risk)

3. You stay in line with your investment time horizon.

19 Responses to “Investing Choices affecting Saving?”

  1. Very true, I know that I am not very knowledgable about investments. I contribute to my RRSPs though work as my work matches a certain percentage and I just went with what was recommended by the adviser after we discussed those points. It may not be the best approach but at least I am saving and getting the contribution from work too. I also have a savings account as my TFSA, I wasn’t sure what I wanted to do with the money so at least its getting saved, thoght I want to look into other options as even at the credit union the savings account interest rates are so low!

  2. Exactly!!! Because I hate second guessing myself, and/or losing money. Better that I know where my money has gone and what it was spent on than having really no clue.
    But my husband found a good investor at the bank, and our investments have been slowly but steadily growing since beginning with them. Wish we had found that person much earlier. When we were younger we knew we had to save something, and lost money right from the start and quit putting more money in. We finally sucked up our loss after 10+ years (we still hadn’t recuperated our original amount), switched it out, and are back on track. But more than the loss, I think of the years also we didn’t save…

  3. Certainly a lot of bewildering choices of investment vehicle out there. Over the years, I have figured out the basics of how stocks, bonds and mutual funds work, and so I tend to invest my RRSPs in those. My emergency fund is in a TFSA savings account – not the best use of a TFSA, but I don’t have a lot of investment cash right now. I am lucky enough to be vested in a great defined benefits pension plan, and for the moment contributions are the bulk of my retirement savings – and I don’t have to understand the investments the plan managers make. I don’t understand investment vehicles like ETFs, whole life insurance and hedge funds at all, and so avoid them like the plague. I would like to understand investing more, but haven’t made the time for it just yet.

  4. That is why it is so important to set up that automatic withdrawal every pay. People get so hung up on making the wrong decision that they never decide at all.

  5. I am thankful for my financial planner when I read posts like this. 🙂 Before her I knew I wasn’t getting the best return on my money but there was so much out there to consider and so much that I didn’t understand that I just felt completely stuck. It feels so much better to have someone on our side that we trust who can guide us a bit through the crazy world of investing!

  6. Is it bad that I clicked on the article because I thought it was about MAC lipsicks? eek. Not a Princess I swear!

  7. avatar Christine Says:
    January 27, 2012 at 6:02 pm

    This is like toothpaste you need one but there is so many kind….

    Just do like me: “Close your eyes and pick one or do not brush your teeth”.Ha! Ha! 😉 “Kids do not try this at home”.

    If you try this anyway you won’t have any friends anymore and the same with your investments.

    Or pick what is on sale… Yes sale on investments! Yes right I will win 1 million next week.

    An optimist

  8. I don’t know a huge amount about investing either, so I just picked a few very low cost index funds covering domestic & international stocks and domestic bonds, and let it go at that. I am maxing out my allowable amounts through payroll deductions so I figure I am doing my part. 🙂

  9. When I started my daughters RESP I didn’t know how I wanted to invested the money I just knew that I wanted to start saving. I’ve been wanting to change my portfolio for a while now but I’ve never gotten around to it. Still I’d rather say ‘gee I’d better change that” every time I get a statement than have nothing saved at all.

    Besides I live in Alberta where they give you $500 just for having a kid in Alberta and starting the RESP and that more than makes up for any less than perfect choice you make.

  10. I just today renewed my RRSP & it’s true with too many choices. I decided on a 30 month because I believe by then the interest will be higher — hopefully! I contribute at work as well as when my pay cheque hits the bank — it’s all automatic. This is the best way for me to eliminate the temptation of spending it — also it’s compounding interest through out the year!

  11. @Marianne
    you are so lucky you have an Financial Planner you like, I just tried that and it was a big fat fail!

  12. avatar Mountain Girl Says:
    January 28, 2012 at 1:58 pm

    I am facing this right now. I make the RRSP contribution, but I am wracked with indecision and frustration over what to do with it. I have a financial planner, but I’m not very impressed. She is like the vast majority of her industry – she sells me mutual funds and insurance policies, and takes a commission off both products. The commission goes to her whether my money makes money or not. I think that’s a bIg conflict of interest for consumers, right there.
    I feel that a financial planner should be doing a LOT more than just selling me mutual funds and insurance. I want someone who is protecting and growing my money, and who can formulate a tax strategy with our investments so we don’t wind up handing most of our savings back to the government. I cannot believe how hard this is to find. Many fee-based advisors will do this, but they generally only work with people who come in with $250k or so. We’re a ways from that. So meanwhile, the money is in a savings account, but if you count inflation, it’s losing value over time. And I don’t have the confidence to go buy ETFs, preferreds, etc by myself. I sure wish there was another option out there. I’d love suggestions if anyone has any! I face this every year and always spend late Jan and most of Feb feeling really really frustrated and settling for some mutual fund that is taking way too much in MER fees.
    I don’t know if the issue is that we are spoiled by choice, or so that they aren’t the best choices to begin with?

  13. […] talked about how having too many investing choices can prevent you from saving at all. I’m glad that even though my 401(k) choices were daunting at first and I picked ridiculous […]

  14. Too many choices paralyze me. That’s why the mall is a terrible place for me to buy clothes or shoes. A million choices and I end up never finding something I like(for the price) and feel cheated over all the wasted time. I feel the same way about my RRSP choices over the years. I picked a financial advisor that I like (after 4 attempts with ones that I didn’t like)…. but her products are doing so poorly that I wonder if I have made a mistake (again).
    I thought these folks were supposed to know more than me? So why is it still flailing in negative returns!? I’ve only got a couple months until I’m not in my 30s anymore, and my income is being hit very hard by the bite of inflation, a teenage stomach in the house and a poor year with my business last year. So I can’t keep increasing my contributions right now — not matter what the “pros” say. If this keeps up, my optimistic outlook may get tarninshed.
    But that’s another story. I am resentful that all these choice for investments are out of my grasp. So I keep contributing to the same old diversified fund every month and PRAY that “buy, hold and prosper” is the truth and not some guilt trip to keep me where I am.

  15. I feel like this when I am trying to decide between similar investments (which mutual fund or which GIC) there are so many choices out there and I think myself along with many others are petrified of making the WRONG choice. What if I lose money because of the choice I made? Ultimately, I think it comes down to having to take responsibility that you might have made the wrong choice, which is fun for no one! I definitely agree with Gail when she says you really need to know what you are buying and do your research on the product before buying it. Thanks Gail!

  16. Like everything in life, balance is the key…your investment portfolio should be no different…there are alot of investment vehicles out there and a little of everything will balance it all out…some “vanilla” gics, some market growth gics, some mutual funds, a regular quick access savings account (the savings acct doesn’t apply to the rsp of course)….if you are worried about commissioned based professionals then meet with an advisor at your bank…I am a Financial Services Rep and I have clients that meet the standard for seeing a Financial Advisor or Financial Planner but they like me and my advice…find someone you like and keep in touch with them…tell them how much contact you need from them to feel comfortable…I have clients that want to meet monthly, quarterly, or yearly…whatever they want is fine by me…it’s not as difficult as it seems…and there are people out there that will help…you just have to go in and meet with them:)

  17. Learning about investing? I like the Money Sense website. The articles are easy to read for the average person. You can look into the Couch Potato portfolios for simple investing with no guarantee on return and no insurance from the CDIC.
    The first question to ask yourself is: savings account, GIC, Bond-type MF, Equity MF, mix/balanced MF, stocks. It is worthwhile learning about the pros and cons of each category before meeting with an advisor. Your comfort level with potential losses guide you towards the right mix. After you can select within each one.

  18. @Mountain Girl – I totally agree with you! I do think a Financial Planner should do more than just sell you products. I think there is an inherent conflict of interest that exists in our current system. I definitely like the idea of fee-based advisers but your portfolio size can definitely be a deterrent.

    I think there is a lot of information out there, and it can be intimidating and overwhelming. Take it step by step and ask questions; there are lots of people willing to help!

  19. @Mountain Girl – you are not alone. your wish for a good financial adviser who is looking out for your financial security rather than just kick backs. i am looking for recommendations…

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