With a pre-authorized contribution program (called an Automatic Savings Plan at Tangerine), you can transfer a set amount of money to your investment or savings account automatically on a regular basis. At times when markets might be experiencing volatility, having regular automatic contributions to your investments can help you avoid emotional decisions and invest for your future.
No need to time the markets (Dollar-Cost Averaging)
An automatic approach to investing removes concerns about whether it's a good time to invest, because investing a fixed amount of money regularly means you automatically buy more shares when prices are lower and fewer when prices are higher. This is commonly called dollar-cost averaging.
For example: Say you plan to invest $1,200 into a fund this year. You can invest all your money at once, or invest $100 each month. The two approaches can have very different outcomes.
Option A: Invest $1,200 at once
|
Investment |
Share Price |
Number of Shares Purchased |
|
$1,200 |
$13 |
92.3 |
Option B: Invest $100 each month
|
Month |
Investment |
Share Price |
Number of Shares Purchased |
|
January |
$100 |
$13 |
7.7 |
|
February |
$100 |
$10 |
10.0 |
|
March |
$100 |
$9 |
11.1 |
|
April |
$100 |
$9 |
11.1 |
|
May |
$100 |
$10 |
10.0 |
|
June |
$100 |
$7 |
14.3 |
|
July |
$100 |
$12 |
8.3 |
|
August |
$100 |
$13 |
7.7 |
|
September |
$100 |
$11 |
9.1 |
|
October |
$100 |
$9 |
11.1 |
|
November |
$100 |
$9 |
11.1 |
|
December |
$100 |
$10 |
10.0 |
|
Total Shares |
$1,200 |
121.5 |
|
Investment |
Ave. Share Price |
Total Shares Purchased |
|
$1200 |
$10.16 |
121.5 |
Comparison between Option A: Invest $1,200 at once and Option B: Invest $100 each month
|
Option |
Total Invested |
Ave. Share Price |
Total Shares Purchased |
Year End Value |
|
A |
$1200 |
$13 |
92.3 |
$923 |
|
B |
$1200 |
$10.16 |
121.5 |
$1215 |
Even small investments could add up over time
The value of your investment has the potential to increase as time passes, and not just because you're adding to it regularly, but because what you've already invested is compounding.
Makes RSP Contributions at Tax Time Easier
Instead of waiting until the last minute to make a lump sum RSP contribution, setting up automatic contributions for your retirement tends to be the least painful way to come up with money to contribute to your RSP.
Getting your contribution in by the deadline means you can deduct what you contribute from your previous year's taxable income on your tax return. This is why some people scramble to come up with money to contribute to their RSP, often in a lump sum, often during a time of year when finances might be tight.
Saves time
In today's fast paced world, you're probably busy and on the go. You have enough things to worry about in your life, and banking shouldn't be one of them. After a few months of setting aside money automatically, you may not really feel the contributions anymore, but you'll likely end up saving more than you thought you could.
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