Many medium-to-large-sized employers offer some form of savings program for their staff; some with a matching component, such as the employer matches 50 per cent of the contribution that the employee makes up to a certain maximum value, while other programs are simply to facilitate savings exclusively from the employee. The draw for employees is that the funds are typically deducted right off one’s paycheque, and of course, the free money if a match is offered.
But the act of saving through payroll deductions is only half the battle. Employees participating in these programs need to take an active role in choosing appropriate investments rather than “unconsciously” letting the money accumulate in a default fund or cash. Yes, sometimes the default fund is actually an appropriate investment choice for the employee, but, how would an employee know that answer if they never check in on their investments.
Here are four tips to make reviewing your work-based investments easier before the end of the year; and making it an annual habit.
Know what you’re eligible for
Hop on your company’s intranet and read up on what your company offers, and what you’ve signed up for. The accounts you choose can either support your long-term retirement goals or short-term savings goals or both. And, there are tax implications with each style of account.
Have you enrolled in a defined benefit or defined contribution pension? Do you contribute to an RRSP or TFSA? Are you funding an RESP for your children? Is your company offering non-registered plans? Which accounts offer a company match, as these should be your priority to fund.
Deep dive into the investment funds that are available
If you’re eligible to choose your own funds, but don’t actively select them, you’ll likely be placed into a default target-date fund that matches your expected retirement year with a standardized risk tolerance such as a 2045 fund for someone who is aged 35 today. This isn’t necessarily bad, but unless you review the other funds available to you, you won’t know if your default fund is the right fit for your goals.
Grab a list of what your fund options are and compare historical rate of return, risk level, the composition of the fund and read up on the fund’s objectives. In most cases, your company will be covering a large portion of the fees associated with these investments.
Once you’ve digested as much of this information as possible, contact your HR department. They’ll refer you to speak to a financial adviser, typically from the fund provider. This professional will assist you in choosing the right accounts and the best funds for you. Then diarize an appointment for next year and the year after and so on to see that you’re on track. Avoid asking an unqualified colleague what to do because everyone’s finances are unique.
Use common sense when buying company shares
Certain savings programs allow for you to buy company shares. If you do, you’ll want to make sure that your company is headed in a good direction so that you can experience upward appreciation. Having personally been on the flip side of this, owning a pile of shares in my former employer, which plummeted in value as natural gas prices slid in 2012, I learned that sometimes it’s best not to invest too heavily in your own company, even if you believe in their vision.
Optimize your contributions to maximize matching
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Figure out how to get the maximum matching dollars. For example, sometimes they scale the match up (or down) depending on how much you contribute. Simply take advantage of all the free money that’s available to you. It’s the easiest “return” on your money you’ll ever make.
Some employers offer nothing in the way of savings plans, and this often applies to small-businesses, too. It’s then up to you to save independently.