ON BANKING

Your Return on Investment. == FOOD FOR THOUGHT ==

Basically there are two ways of loosing money in a Bank: (1) The Bank gets broke and has not enough capital to pay out all of its customers (remember world-wide banking crisis), once the big run for it starts. (2) You buy an investment and receive a little bit of interest. And it adds to your overall income and bumps you up into a higher tax rate.

Usually at the time when you buy – be it bonds, or GIC’s or any other instruments – the promised interest rate is typically higher than the actual rate, once you have deposited your cheque into your Bank.Then of course, the Bank cannot promise any rate of interest to you, because of changing bank rates.

Here in Canada we have another type of instrument – that is the Tax Free Savings Account TFSA. Depending on your Bank, the interest rates paid to you are typically low. If many are taking advantage of this TFSA, then the Government has some money to work with. In fact, it helps the Government more than it helps you because the interest paid is negligible. Other investments are usually more subject to losses, such as Mutual Funds, Trust Funds. Or, be careful, buying any IPO’s – Initial Public Offerings. Wait a little until their value drops.

I did my homework. Had some money in one of those Mutual Funds, a big fund, which in fact is a ‘Fund of Funds’. Dangerous stuff, because one cannot easily find out what type of companies, corporations, financial institutions this fund invests in. I spent one day to get to the bottom of it and found: Several obscure banks – of unknown origin and country – that did not even exist. Now I knew why I lost so much in this FUND OF FUNDS (which by the way had been solicited). One year I decided to sell out a big chunk of my money (in my retirement fund) that was invested in mutual funds.After that I could sleep much better.

Per contrast: How safe would it be to stuff your money – in cash – under your mattress, providing you live in a save neighbourhood, and your housing does not burn down. What are the chances of that ?

And my advice to investment advisors: Try not to sell mutual funds to clients who are into their 70s, because those funds are for the long haul.

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