Paying yourself first is a sound saving strategy that virtually anybody can put into practice. The strategy is all about convincing yourself that you and your lifestyle deserve at least the same consideration given to the cable company, a car loan or your utility providers. The Transamerica Guaranteed Investment Funds contract (TGIF) has great options to get you started.
When it comes to investing, discipline is the key to success. By allocating a fixed dollar amount on a regular basis to your segregated fund portfolio, you will gradually build your savings. Contributing a fixed amount on a regular basis through a Pre-Authorized Chequing (PAC) plan can help you pay yourself with as much discipline as you pay everyone else.
An added benefit of investing at regular intervals is that it tends to smooth out volatility. When your investments increase with rising markets, your regular investment will purchase fewer units. When your investments fall with weak markets, your regular purchase will buy more units. This effect is referred to as “dollar-cost averaging,” because your unit cost will be the average of all your regular purchases. This strategy does not increase your chances of a gain or protect against a loss; rather, it smooths out the ups and downs by lowering your average cost per unit when your investment declines.
Sometimes dollar-cost averaging is used even when there is a lump sum available. If, for instance, you have concerns about short-term prospects but have a long-term strategy, you may want to discuss a dollar-cost averaging strategy with your advisor. Investing smaller amounts at regular intervals can alleviate the anxiety of putting everything at risk all at once.
Invest a fixed amount on a regular basis (e.g., $100 per month) and build gradually.
Speak to your advisor about what level of contribution is right for you. You may have a specific dollar amount in mind or want to use a percentage of your earnings (e.g.,10%).
Deposits can be made to a registered or non-registered account.
Your Transamerica GIF PAC can be stopped or postponed if you need to increase short-term cash flow.
The frequency and timing of the contributions, as well as fund selection, are entirely up to you.
The affordability of this strategy makes it easy to pay yourself early and often, which is key to successfully building your savings.
Making gradual investments may reduce market-related anxiety.
Spreading your investment out over time, whether markets are high, low or in between, will help to smooth out volatility.
A PAC takes the guesswork out of when to invest.
Paying yourself first ensures that you are building your savings with discipline.
The word “compounding” is used in the investment world to describe the cumulative effect of a series of investment returns.
By earning on earnings you accelerate your growth. The illustrations below demonstrate the advantage of compounded returns over straight interest.
The Transamerica GIF contract provides 50 great options for building your investment portfolio with Pre-Authorized Chequing (PAC) that allows you to invest using smaller amounts as manageable as $100 per month.
Reinvested earnings versus paid earnings on a lump sum investment*
The example below shows the performance of a lump sum purchase of $10,000 over 20 years with an annual return of 5%.
As you can see, reinvesting earnings increases your potential return on investment significantly.*
This example illustrates the different outcomes depending on how much you invest through monthly contributions over 20 years.
The assumed annual rate of return for illustration purposes is 5%, and there are no funds in the account prior to the first regular contribution.*
Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value.
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