Don’t park your savings – learn how to invest instead!
Learn how to make your hard earn money work for you.
Updated 
5 min. read
Have money set aside? Learn how to invest your money to make the most of it.
You know it’s important to save for your future. You might have even tucked money away in an RRSP or a TFSA. But do you know how to invest that money to make it work harder for you?
It all starts by looking at your “parked money.” That’s the money you keep in a low-interest chequing or savings account (or even under your mattress). All that money could be working harder for you through smart, simple investments.
What’s the difference between saving and investing?
Great question. While they seem similar, there are a few key differences between saving and investing your money.
Saving your money
Saving your money means you’re putting funds away, usually bit by bit, to use some time in the future. One common way to save is with a chequing or savings account. You could also be putting cash into your RRSP and TFSA, but not investing it yet.
While saving is super important, it’s not always the best way to reach your financial goals. The money you have sitting in a savings account grows at a low rate, but it’s mostly just sitting there. Thanks to inflation you might even be losing money.
Think about it like this: if inflation (the average cost of goods and services) goes up by 2% but your money only grows by 1% then your savings are actually worth 1% less than they were at the start of the year. Inflation can really add up over time.
Investing your money
Investing your money is all about growth. You’re still putting money away, but you’re strategically putting it into investments that can turn your money into more money. While investing often involves taking some level of risk, you’ll also be getting returns back.
For instance, you can fill your RRSPs and TFSAs with a mix of common investments. Loading those accounts with more than just cash can help you grow your money faster and reach your goals sooner (hello, cottage at the lake, or even early retirement).
Identifying your parked money
By identifying your parked money, you can evaluate whether those funds would be better off elsewhere. Here are a few common spots people park their money:
- Low-interest chequing or savings. These are good places to park some money for an emergency fund, because they’re safe and easy to access – but your money won’t grow very quickly.
- RRSPs or TFSAs. These accounts are excellent ways to save for the long-term because they can hold a mix of investment types. Yet cash is still the most popular way to fill a TFSA, and the second most popular for RRSPs footnote 1. If your account only holds cash, you’re losing out on a lot of potential earnings.
- Under their mattress/cookie jar/piggy bank. OK, maybe this isn’t so common. But we know, the paper stuff is super flexible and it feels secure to have something you can hold in your hand. Unfortunately, those bills aren't multiplying by themselves. And while it’s OK to have some money on hand, if you find yourself with large sums lying around, you might want to reconsider your options.
The bottom line: Moving your parked money from your savings to investments can mean a bigger payday for future you.
How to invest your money
Now that you’ve identified your parked money, it’s time to put it to work. The first step is to think about what you’re saving for: Do you want to save for retirement? Put a down payment on a house? Finally adopt a puppy? No matter how big or small your goals, investing can help you reach them.
The next step is to learn a bit more about your options and determine which might be the best fit for what you want to accomplish. Here’s a quick rundown of investment options for everything from right-now goals to way-down-the-road plans.
1. How to invest for your short-term goals
You’ve got your eye on a big-ticket item in the next year or so, like a new car or that vacation you’ve already planned on Pinterest. The trick to saving for the near future? Guaranteed returns. That means you get back 100% of your original investment.
One of these low-risk options is a Guaranteed Investment Certificate (GIC). Here’s the deal: you invest a set amount of money for a set amount of time (usually anywhere from one to five years).
Most GICs offer a set interest rate, which is typically higher the longer you invest. When that time is up, you get all your money back – plus a nice chunk of change. GICs are great options for newbie investors who are investing for the short-term or might not be totally confident with riskier investments.
There are also market-linked GICs which guarantee you’ll get your initial investment back, but don’t guarantee a return. Instead they’ll offer a return of something like 0-20% based on whether the market goes up or down. Worst case scenario you break even. Best case scenario: you get a rate of return much higher than a traditional GIC. They’re a nice compromise for people who want to make the most of a strong stock market but don’t want to risk losing their initial investment.
2. How to invest for those in-between goals
Say you’re saving for big purchases in the not-so-distant future – like your wedding or a new home. While you might have a few years to let your investments work for you, you don’t have decades to wait. That means you want to find the investing sweet spot between risk and reward.
You might want to check out Exchange-Traded Funds (ETFs). An ETF is made up of lots of different stocks, bonds or other investment types all in one fund. That’s called diversification, and it basically means you aren’t putting all your eggs in one basket. Less risk, more reward. Plus, ETFs can be bought and sold easily so you can access your money when you need it.
3. How to invest for your long-term goals
You’re looking to invest for way-future you. Think early retirement or your kid’s college fund. In that case, you’ll be able to take on a bit more risk in your investing strategy. That’s because when you’re saving for something that might be decades away, you’ll have plenty of time to recover if the market takes a dip.
With that in mind, you might want to opt for investments with a high potential for growth (even if that means some ups and downs). Mutual funds and stocks are a great place to start. Your investments will fluctuate with the market, so you’ll be taking on some risk. But you’ll also have the potential for higher returns in the long run. For example if you invested $35,000 in a mutual fund with an assumed annual growth of 6% per year, after 20 years you would have $115,857.16. If you took that same initial investment and kept it in a savings account that gave you 0.800% interest, your lump sum would have only grown to $41,005.07. The growth you would have missed out is $74,852.09 footnote 2
Still not sure what investment types are right for you and your goals? Check out our handy tool to find the best BMO investment for you.
Tip: If you have an RRSP or TFSA, you’re already one step ahead of the game. You can fill both with a mix of investments, cash, GICs, stocks, bonds, mutual funds, and more. Even better, you won’t pay any taxes on your TFSA growth and you’ll only pay tax on your RRSP when you make a withdrawal (usually when you’re retired and in a much lower tax bracket). Calculate how much more you could save by investing with a TFSA using our Tax-Free Savings Account Calculator.
Take control of your financial future
Ready to invest your parked money and take control of your future? Whether you’re an investing pro or are just starting out, we have options for you -- both online and with an investment professional. Explore our comprehensive selection of investment products and online platforms tailored to suit various risk appetites, financial goals, and investment strategies.
If you want to learn more about investing and your options, check out all our accounts and investments.
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Unsure about the right accounts or investment types? Use our “Help Me Choose” tool to find an investment plan for your goals.
Footnotes
1 2018 Annual TFSA/RRSP Study by BMO in partnership with Pollara Strategic Insights2 For illustrative purposes only. This scenario assumes an investor makes an initial investment of $35,000 and receives a 6% rate of return compounded monthly. As with any investment product, returns are not guaranteed.