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How your money can make an impact

Money can do so much more than simply meet your needs and provide you with entertainment. Money can also be a tool to amplify your voice, to fight against injustice, and to support virtuous causes. In fact, every dollar you spend has an impact on society. 

To point out the obvious, not everyone has the energy or resources to prioritize social and environmental justice, but for those who do want to spend more consciously in order to have a positive impact, here are our best tips.

Boycott harmful brands 

An often underestimated, yet powerful, act is boycotting (the refusal to buy and consume a company’s products or services). Boycotting really does make a difference because when it happens on a large scale, it forces brands or companies to change their destructive practices.

The idea isn’t necessarily to eliminate the consumption of every single product by companies with questionable practices, but to favour brands that truly deserve your business. Examples of opting for ethical businesses instead of corrupt ones include  shopping at independent greengrocers or farmer’s markets rather than at supermarket chains, buying clothes in consignment stores rather than from fast-fashion brands, buying books in a neighborhood bookstore rather than online, and so on. 

We can’t always make “perfect” buying decisions, but we can try to make better choices according to our budget and what’s available. If you don’t know where to start, you can try consulting Ethical Consumer, which lists various boycott campaigns against large companies.

Support honest companies by spending

Once you’ve decided what to boycott, it’s time to buycott. This term refers to consuming in a more ethical and responsible way. The goal is simple: realize the power of your money, and turn to brands that have a positive impact on people and the planet. Don’t hesitate to consult this small directory of eco-responsible brands, classified by category.

Buycotting is about making conscious choices. For example, rather than buying your coffee from a large American brand whose name starts with an S, you may choose to get your caffeine fix from the independent (and ethical) coffee shop near your house.

Ever find yourself browsing products at a store and wondering if they’re sustainable and honest? Try using the app Good on You app, which makes it easier for consumers to shop in an ethically responsible way by compiling the impact of over 3,000 brands on people, the planet, and animals.

Invest in SRI funds

Socially Responsible Investing (SRI) is a simple and effective way to give meaning to your money. SRI funds select companies according to ESG (Environmental, Social and Governance) criteria and not just financial ones. Moreover, contrary to what one might think, they are no less efficient than traditional funds! So it’s a great way to combine profitability with ethics. 

Want to get started? With Moka, you can invest your money in the Moka SRI fund, which invests in ETFs that address today’s major social and environmental challenges. Based on your investor profile when you sign up, we’ll assign you one of five diversified SRI portfolios that is most suited to your personal and financial goals.

Support charities by making a donation

Cleaning up the oceans, planting trees, helping people in need, rescuing animals, supporting local farmers…there are an untold number of causes that are of concern to Canadians.

No matter what concerns you personally, there is bound to be a non-profit that addresses these issues and that you can support regularly or on an ad hoc basis. If you’re not sure which organizations to support, you can start by consulting Canada Helps, which connects donors with over 86,000 registered charities, or simply search online for a cause or organization you’d like to support.

Please remember, there is no donation too small! Even $10 dollars per quarter is better than nothing at all.

Learn to spot greenwashing

Greenwashing is a marketing strategy that consists of showcasing a company’s “green” practices, when the brand or product is not, in fact, ethical or sustainable. To help you flush out false promises and deceptive arguments, the Government of Canada has published a series of anti-greenwashing questions that can be consulted online.

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Long term growth: Why we’ve updated the Moka investment portfolios

Everyone deserves to live the life they want and we believe Canadians should have easy access to tools that will help them achieve their financial goals. We also know it’s possible to build wealth if you invest early and often; but when it comes to investing, there’s a lot to take into account. From your personal financial situation and goals to your risk tolerance and time horizon, these factors should all be considered when determining which investment strategy is best for you, and revised from time to time to reflect changes in your life. 

Similarly, as financial markets evolve and new investment opportunities become available, these changes can affect your overall investment strategy along with where and how much you invest.  

Today’s financial markets aren’t the same as they were at the start of the COVID-19 pandemic, just like they aren’t the same as they were during the 2008 financial crisis. That’s why our portfolio managers are regularly reviewing our investment models and fund strategies to ensure they best reflect today’s markets.

Based on rigorous research and thoughtful feedback from our users, we’ve made select updates that are intended to provide you with competitive portfolios that can help you achieve your financial goals. 

These updates include new names for all of our investment portfolios and refreshed investment strategies on select portfolios:

New portfolio namesPrevious portfolio names
Cautious Income Conservative
Balanced Income (modified SRI portfolio)Conservative-Moderate
Balanced (modified portfolio)Moderate
Balanced Growth (modified portfolio)Moderate-Agressive
Equity Growth (modified portfolio)Agressive

All our investment portfolios are made up of allocations to one or multiple investment funds. So, depending on your financial goals, risk tolerance and time horizon, the money in your portfolio will be allocated to one or a combination of investment funds that meet your specific needs. 

Moka portfolios are made up of four different investment funds to meet the various needs and goals of our members. In this case, the Moka Money Market Fund and Moka Fixed Income ETF Fund are staying the same while the Moka Equity ETF Fund and Moka SRI Fund will see two main changes that will affect the portfolios indicated above specifically:

1) An increased exposure to US stocks

In an effort to give you access to a broader range of sectors and industries, we’ve increased the funds’ exposure to US stocks by adding exchange-traded funds (ETFs) such as the S&P Total Market Index. By making this change, you could now have a bigger stake in companies like Apple, Alphabet, Microsoft and Tesla.

2) The addition of cryptocurrency

We’ve heard you loud and clear, and with the growing adoption of cryptocurrency as a legitimate investment asset, we decided now was the time to add digital currencies to our funds. The updated funds now include a 5% total allocation split evenly between exchange-traded funds (ETFs) that track Bitcoin and Ethereum. Given the small percentage allocated to cryptocurrency in the fund overall, any downturns are expected to have minimal negative impact on returns—baby steps!

We selected Bitcoin and Ethereum specifically because they’re among the most popular and stable cryptocurrencies available. Though they can be volatile; they have outperformed other asset classes in recent years, with Bitcoin hailed as the best performing asset of the last ten years

Our portfolio managers will continue to review these and other digital currencies to reassess if and how cryptocurrencies and other asset classes can be factored in when creating and refreshing funds for our members. 

What do these changes mean for you?

We’ve always strived to offer a variety of investment portfolios to our members that meet their personal needs and help them achieve their financial goals, so we’re thrilled to offer these updated portfolios.

For members with long term goals and who can tolerate some risk, we have shifted the composition of our highest-risk portfolio (now “Equity Growth”) to 95% equities and 5% cryptocurrency, split evenly between bitcoin and Ethereum.

If we look at the S&P 500’s historical performance as an example, a common benchmark in the investment industry, it’s had an average annual rate of return of 10% since its inception. To put that into perspective, if you were to invest $300 per month in the S&P 500, your investment could be worth just under $1.7 million after 40 years, if past results were to repeat themselves. Of course, there is no guarantee that will be the case. However, this example goes to show you the power of compounding returns!

So what do these changes mean for you? The short answer is: it all depends! 

The portfolio you’re invested in can’t be changed by you directly. If you remember way back to when you first signed up with Moka, we asked you a series of questions that were intended to get a better understanding of your financial goals, risk tolerance, time horizon and overall picture of you as an investor. Based on your answers, your portfolio manager selected an investment portfolio that best suited your financial goals and personal situation. If, for example, you had a short term investment time horizon, as defined by the date you set on your goal, or were less willing to take risk, your investments were likely placed in a less risky portfolio, like the Balanced Income or Cautious Income portfolios.

The good news is that you can update your goals by revisiting the questionnaire in the app at any time—if anything has changed or changes in the future with regards to your personal situation and financial goals, they will likely reflect a change in your portfolio. So if our new updates don’t immediately affect your portfolio, there’s always a chance they will in the future.

To learn more about your current portfolio and investments, click here on your mobile device to open your Investment Policy Statement. If you’d like to revisit your onboarding answers, click here. Any changes you make will be reviewed by a portfolio manager, and may trigger a change in your investment model.

If you have any questions or concerns about these changes, you can always reach out to our portfolio managers at operations@tactex.ca.

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How do world events affect my personal finances?

We often hear about “fluctuations” in the stock market. What exactly are these, and what causes them? At a time when geopolitical tensions are plunging us into uncertainty, it’s important to learn how the global markets can impact our personal finances. 

Let’s get into it.

Why do stock markets fluctuate?

Stock prices change daily, depending on supply and demand. The price of a stock, for example, is set in part by demand; therefore, the greater the number of buyers, the more the price is likely to rise.

Overall, markets are very sensitive. They can fluctuate due to internal factors within companies, but also depending on the current economic situation. If overall economic growth is strong and the political situation is stable, stock markets will tend to rise. If, on the other hand, the economic or political situation is unstable, the stock markets will tend to fall. We saw this particular situation occur during the Covid-19 crisis, when the S&P 500 collapsed during the March 2020 lockdown.

In general, several factors have an impact on markets:

The health of a given business sector

When a business sector is healthy, it benefits all companies in the industry, and vice versa. This is what’s happening with American tech companies (Facebook, Amazon, Microsoft, etc.), whose prices are reaching record highs. Conversely, when a sector of activity is struggling (for example, because it’s overtaken by a scandal), the stock prices of the companies in that sector will tend to fall.

The economic context

Economic conditions play a crucial role in stock market prices and in our daily lives. Basically, when the economy is doing well, prices tend to rise. This is called an “uptrend”. Conversely, in times of crisis or recession, the markets tend to fall.

Major world events

Major world events, even outside the stock market, can have a massive impact on prices. Examples of events might include a health crisis, the election of a new leader (on Donald Trump’s election day in 2016, global stock markets first crashed before recovering), a war, a climate event, geopolitical tensions, and so on. Any of these events will have a direct impact on our lives, as we are seeing right now with the rise in fuel and raw material prices which are partly due to the situation in Ukraine. Because of this conflict, the price of wheat has increased by 70% since the beginning of the year! Consequently, we’re seeing soaring prices in certain commodities such as bread.

Will I lose money when the stock market fluctuates (because of a global event, for example)?

Stock markets are volatile by nature, and volatility is the measure of the amplitudes of variations of a financial asset, both upwards and downwards.

So, should we be afraid of volatility?

It really all depends on your sensitivity to risk and your investment horizon. The investment (whatever it is) must be considered in the long term, knowing that time is the enemy of risk. Even if you lose money at a given point of time, these losses tend to be smoothed out eventually. Moreover, nothing is ever set in stone! Say you bought 3 shares at $10. Two weeks later, they might only be worth $8. You might think you have lost money, but in reality, as long as you have not sold your shares, you have neither gained nor lost. If you wait another 2 years, it’s quite possible that the value of each share will reach $15 dollars or more!

Moreover, if your money (or at least part of your money) is placed in savings accounts, cash equivalents and money market funds, and fixed income products – you can control against the risk of the more volatile stock markets. This is for good reason; these are investments with guaranteed capital, and there is therefore no risk of loss except for the loss due to inflation.

On the other hand, price fluctuations can directly influence the price of certain raw materials, or even energy. In this case, the entire population is affected, since these fluctuations are reflected in prices. Fortunately, this doesn’t mean that the situation won’t change in the short or medium term!

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Which investment strategy is better: Passive or active investing?

When creating an investment strategy, it’s important to know how passive investing or active investing could work for you.

Depending on your goals, time horizon, and comfort levels, you may come to favour one over the other. Here are a few important points that could help you figure out if either approach may be right for you.

What’s passive investing?

Passive investing has increased in popularity in recent years as app-based investment platforms have become more available. Passive investing is generally speaking a strategy defined by its minimal buying and selling of stocks or other instruments.

Instead, passive investing can be considered a ‘buy and hold’ strategy with a long term investment horizon. A common form of passive investing involves investing in diversified products like exchange traded funds (ETFs) that track major indices (like the S&P 500 or Nasdaq) over a longer period of time.

As the value of these diverse products increases or falls, so too would that of your holdings. Passive investing allows for a more hands off approach to wealth building, and historically can perform well over many years.

What’s active investing?

Active investing involves the active management of a given portfolio. You could be the one managing the portfolio, or it could be a financial advisor or portfolio manager that you hire to manage your investments on your behalf. It is the job of the active investment “manager” to try and maximize the value of the investments in the portfolio by using highly specialized knowledge and intuition to buy or sell.

Where passive investing is about taking a hands-off approach over a long period of time for generally more moderate returns, active investing is about taking a hands-on approach over shorter periods of time in the hopes of securing some big wins or gains in the value of your portfolio due to timely opportunities and price fluctuations.

Active investing typically involves higher fees than passive investing, in part because you are paying a fee to your investment manager, and because there may be a cost associated with executing trades.

Pros and cons of passive investing

Passive investing has been theorized as a good option for most casual investors because it will typically involve lower fees and less risk. However, passive investing does have a few disadvantages you should consider, too.

Pros:
  • Low fees. Because of the lower trading volume typically involved in passive investing, and because no dedicated portfolio manager is required, passive investments can cost much less than active investing. PWL pegs the management expense ratio (MER) of passive funds in Canada at just 0.28%. This can make a huge difference in your returns over time.
  • Tax efficiency. Because passive investments may grow more moderately (when compared with active investments), you may avoid larger capital gains taxes.
  • Lower comparative risk. Because passive investments often track well established indexes like the S&P 500, while the value of your investments will certainly fluctuate over time, their diversification tends to limit the volatility compared to individual stocks.
Cons:
  • Slower growth. Passive investing isn’t about trying to win big in the short term. Instead, this strategy could be conducive to saving for retirement, for example, where over the long term your regular contributions and returns could steadily accrue. However, this means its goal is not to see big gains in short periods of time.
  • Market underperformance. According to some, once costs are taken into account, passive investments that simply track a market index may underperform the market (because they track the market itself).

Passive investing may be a good strategy for you if you plan to invest over a long period of time, if you aren’t chasing big wins in short periods, and if you want to keep your costs low.

If passive investing sounds like it could be right for you, check out the Moka app.

Moka rounds up the spare change from every purchase you make and invests it weekly in diversified portfolios. Plus, you can give your savings an extra push using roundup multipliers, recurring deposits and one-time boosts, all of which will get automatically invested.

Getting signed up is easy—just answer a quick questionnaire and a portfolio manager will pick the perfect portfolio for you. 

Pros and cons of active investing

Active investing can get a bad rap, but it can also still play an important role in the investment strategies of many people.

Pros:
  • Attempts to outperform the stock market’s average returns. When your investments are actively managed, you or your portfolio manager can trade strategically to try and beat the market. This approach could earn you big returns that are basically unheard of in the world of passive investing. But typically, big returns also come with taking big risks.
  • Investment flexibility. Unlike passive investments, which may track an entire index, your actively managed portfolio can include any number and variety of financial products that might appeal to you. This way, you have more flexibility in terms of the types of investments you make, and your fund manager can look for new and exciting opportunities that might appeal to you.
Cons:
  • Higher fees. In Canada, the average fee for an actively managed fund is five times greater than that of a passive fund, clocking in at 1.59%. Over time, this can seriously damage your returns.

Let’s look at an example. Say you begin with an initial investment of $50,000 in mutual funds, and you contribute $10,000 annually for the next 30 years. Then, let’s say you’ve got a return of 7% and a fund expense ratio of 1.59%.

It’s just 1.59%. How bad can it be?

At the end of that 30 years, your investments would be worth $1,391,343.17 gross according to this source.

The fees? $396,747.84!

This makes your net gain, less the fees, only $994,595.33.

  • Long term underperformance. According to one study, “over the last five-, 10- and 15-year periods, 84%, 97% and 92%, respectively, of actively managed large-cap funds underperformed their benchmarks.”
  • Greater risk. Because your portfolio manager is actively trying to beat the market, they are also assuming more risk than passive investors.

These risks can be substantial, but this is in keeping with what we know of active investing as a whole: more risks, possible big rewards. In a short period of time, you could win big. But over a long period of time, it is statistically unlikely those big wins would be the norm.

If you want to get more involved with your wealth building journey but don’t want to hire a portfolio manager, you may want to consider taking the self-directed route. By using an app or a website, you can plot and make your own trades.

If this sounds right for you and you’ve done your own research, check out the MogoTrade waitlist. You get instant access to free live-streaming stock prices, can build a watchlist to track your favourite stocks, and can be among the first to trade commission-free when MogoTrade launches later this year. Visit the App or Play store to download MogoTrade today.

Which investment strategy is right for me?

Only you can decide on the right investment strategy for you. It depends on your goals, how comfortable you are with risk, and your time horizon.

There may even be room for both of these types of investments in your financial strategy. You can determine this by doing your own research and speaking with an accredited expert about your goals.

Theoretically speaking, these two strategies could balance each other well. Your passive investments could build up your retirement slowly over time; your actively managed investments could help you stay in sync with your wealth building journey and even earn you a couple extra bucks here and there.

After you’ve talked to a professional and decided on your path, you could consider Moka for your passive investments and MogoTrade for your active trading.

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What’s your investor profile?

What’s my investor profile?

Not your standard Hinge question, but figuring this out will help guide the who, what, where, when and how of your investment strategy. To get a better idea of your investor profile, you should consider the following: 

  • Age and personal situation: In theory, it’s easier to take risks when you’re young and (still) have few responsibilities. Do you have a steady income? Do you have children? What are your upcoming financial goals (buying a home, travelling, buying a car, etc.)? These are all questions that you should think about before investing.
  • Investment horizon: The longer your investment term, the more risks you can afford to take, since they will be smoothed out over time. Retirement will have a much longer investment horizon than going to Mexico next winter.
  • Risk appetite: Are you comfortable with taking risks? How do you feel about the idea of ​​financial loss? Or, would you rather have more security for your investments, even if your returns are potentially lower?
  • Financial knowledge: Do you understand the basics of finance and investing or are you a complete novice? If you’re a complete novice, don’t worry! We have some tools to help you get comfortable with the more common concepts and terms.

Take a few minutes to really answer the above questions. Then we can determine your investor profile: conservative, moderate or aggressive.

I’m rather… careful

You fit the Conservative profile if you value the security of your savings, are risk averse, or have short-term plans.

In this case, you’re better off putting your money in investments that are lower risk, such as savings accounts, bonds or GICs. The downside of investing in these assets is the low rate of return, which currently is even lower than inflation.

The Conservative profile is composed of 100% money market investments, which are short term debt obligations. The goal: to take a very little risk, while focusing on safety.

Note: The Conservative portfolio is recommended for investors who wish to access their savings in the short-term (1 year or less).

I’m rather… moderate

You have a balanced profile if you prefer a happy medium between security and performance. You’re not afraid of risk, but you don’t want to put all your savings on the line.

In this case, a diversified portfolio of  investments will  help to smooth out risk. For example, you can look at investing in a combination of stocks and bonds. Low-cost, well-diversified exchange-traded funds (ETFs), which are a collection of stocks or bonds, can be a good way to balance out your risk. . 

At Moka, our Moderate portfolio offers medium risk-taking and an average return, for a medium-term horizon (buying a car, financing a move, etc.).

Note: A medium-term horizon is generally between 2 and 5 years. 

I’m rather… adventurous

You fit the aggressive profile if you don’t fear the risks of loss and want to maximize your returns over the long-term.

For this type of profile, we recommend investing an important portion of your funds in equities To reduce the volatility of this investment, you can build your portfolio as follows: 70% to 80% stocks, and 20% to 30% bonds. Over the long-term, stocks are one of the most profitable asset classes. By focusing on these, you can maximize your expectation of earnings. But remember, there’s always a risk of loss when you’re investing, no matter what precautions you take.

At Moka, our Aggressive portfolio is made up of 80% equities and 20% bonds. It allows you to achieve higher profitability, while accepting the risk of potential losses.

Note: The Aggressive profile is for those with a long-term investment horizon  that is at least 5 years.

Now that you’ve gone through this exercise, you can better define your investment strategy according to your profile. Keep in mind that both your profile and strategy can change over time as your needs, projects, and financial and personal situation change.

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Meet Jean-Francois Goyette, CFA, Moka’s Portfolio Manager

If someone wants to start investing, what’s the first thing they should know?

It’s never too late to start investing; the best time to start is today. And you don’t have to be rich either! Nowadays, there are plenty of options available (like Moka!) that will help you invest your savings, or help you save to invest for the long term, without prior financial knowledge.

That said, you should still get familiar with things like general terminology, account types, and how to read a statement, in order to make better decisions and understand what’s happening with your money. 

What do you need to get started?

You need an internet connection, a few dollars, a few minutes … and patience!

We always hear about risk. How can a first-time investor manage risk?  

First, you have to ask yourself how risk tolerant (or risk averse) you are. How would you feel if your portfolio lost value, how would you react? Can you afford losing some (or all) of the money you invested? 

Money that will be needed in a short period of time should be invested in conservative investments.

Also, don’t put all your eggs in the same basket, diversify your portfolio, and don’t chase “get rich quick” schemes. Remember, if it’s in the news, the opportunity is probably gone already! 

Professional money managers are broadly unsuccessful trying to time the market. As the saying goes: Time in the market is more important than timing the market. And don’t trust your brother-in-law who’s bragging about making a fortune investing in meme stocks; he’s most probably not mentioning those other times when he lost money! 

How can someone decide how much to invest?

A general best practice with budgeting is to save at least 10-20% of your monthly income, but you should really save as much as you can, keep some amount for an emergency fund, and invest the rest of it. When retirement comes, you’ll thank yourself and appreciate the wonders of compounding returns! 

If you’re not sure if or when you’ll need the money, there are different options that let you withdraw it whenever you need to without penalties, so don’t let it sleep in your chequing account!

What impact does inflation have on investments?

For starters, inflation is the rate at which the price level for goods and services is rising, generally as a result of the value of a currency falling, but also as a result of supply/demand forces. It’s most commonly measured by the Consumer Price Index (CPI). In general, too much inflation will be a drag on the economy.

Inflation can be positive for those holding tangible assets, like real estate or commodities, since it raises the value of those assets. However, higher inflation will harm savers because the purchasing power of the money they have saved will erode over time. As such, securities with fixed, longer-term cash flows like bonds will tend to underperform in a rising inflation environment. On the other hand, it can benefit borrowers, as the value of their debts will shrink over time, on an inflation-adjusted basis.

Stocks are considered to be a good hedge against inflation, as its effects are priced into stock values, although this won’t be true for all sectors of the market. Investors wishing to protect their investments from inflation should also consider other asset classes like gold, commodities, and real estate investment trusts (REITs), that can benefit from rising inflation.

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5 investment myths debunked

We’re here to debunk five of the most common investment myths and—hopefully—make you feel a little more comfortable about investing.

Myth #1: You need to be a stock market expert in order to invest

The stock exchange, which is where stocks, bonds and other financial securities are traded, sold and bought, isn’t well understood by the majority of people. Not to mention the surrounding financial jargon doesn’t exactly make things more clear. With terms like shares, stock market indices and dividends, it’s easy to see why people feel lost. But don’t let the granular details about financial markets intimidate you—investing is actually easy to understand and accessible to everyone.

If you want to brush up on your finance lingo, we recommend this article to help get your bearings. You’ll notice eventually that the same terms are actually used over and over, and that it doesn’t take long to grasp the key concepts. In reality, buying stocks or exchange-traded funds (ETF’s) is easy and accessible to everyone (including those with limited budgets!). 

Myth #2 : Investing is a man’s world

Unfortunately, we’ve heard this before. This is an antiquated stereotype, and the cliché wolf-of-wall-street-representations of investors don’t help. All too often, the depiction of a banker or investor is a man, even though women are just as interested in the idea of investing as their male counterparts.

There is no such thing as a predisposition to invest. An interest in investing is a question of education and culture, not of gender. For this reason, it’s critical to be well informed. What we do know is that women’s investments are on average 1% higher than men’s. The reason is simple: because of their education, women  are often more sensitive to risk, and less quick to make hasty decisions. This type of mindset is actually rewarded when it comes to investing, since investing involves risks of loss of capital.

Myth #3: Investing is for older or retired people

Here’s another investment myth with absolutely no truth to it! Unfortunately, 65% of young people don’t think investing is for them, and 29% of people in this cohort don’t think they have enough money to invest. However, there’s no minimum amount needed to start investing—just one dollar is enough! Whether you are on a limited budget or not, there are several options available to you to help you accumulate money tax-free, such as a tax-free savings account (TFSA).  Many employers are offering a variety of tools that should not be left on the table when it comes to boosting your investment. With the Moka app, you can invest quickly and efficiently with no minimum amount required—all you need is your spare change!

The great thing about investing is that it’s a virtuous circle. Unlike saving, it enables you to obtain a return and to grow your capital. It has to be mentioned that a return isn’t necessarily guaranteed, as there is always some risk involved, but it’s still the best way to generate profits. The earlier you start, the more likely you’ll be able to see your money grow, regardless of the initial bet.

Myth #4 : The funds you invest are inaccessible

When it comes to accessing your money, it depends on the medium you choose. Usually, the funds invested can be withdrawn at any time. However, we recommend that you invest your money with a medium and long-term perspective in order to give it time to grow.

Moreover, studies prove that it’s better to just let your investment grow over time, as opposed to withdrawing your money when there’s a dip in the market. In other words, it’s better to let your money work on its own!

Myth #5 : Investing isn’t worth it if you’re young

Many people will tell you that they’re investing for their retirement, or for their future in general. Those “golden years” may seem far away if you’re only 18 or even 30 years old, but investing at a young age is a great idea.

The earlier you invest, the longer the investment horizon (the total length of time that you have said investment). These long-term investments are generally advantageous because they benefit from increasing profitability thanks to compound interest (the interest that gets periodically added on to interest that has already been accrued). By investing small amounts regularly, you’ll slowly grow your capital. Fifteen dollars here and $30 dollars there might not seem like a lot of money now, but the interest it will generate over many years will surprise you!

So, even if you don’t have any specific projects in mind, don’t hesitate to start investing: in a few years, you’ll probably be glad you started!

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How to invest with a limited budget

Is investing with a limited budget mission impossible?

If you don’t earn the kind of income you need to build savings, or if you’ve lost your job due to the Covid crisis, you might think investing isn’t for you.

Investing, contrary to popular belief, isn’t just for the wealthy. In fact, this is a common misconception we’re keen to address. No matter what your financial goals are, or how limited your budget is, investing your money is still one of the best ways to earn a return in the long run. When it comes to investing, there’s no need to wait until you have a certain amount of money set aside—there’s no better time to start than the present!

Here are a few key tips for investing when you have limited means.

1. Decide on a budget for investments

Many people make the mistake of deciding to invest whatever money they have left at the end of the month (if there is any). With this approach, it’s almost impossible to predict how much money you’ll be able to devote to your investments, and you may not end up investing at all. A better strategy is to take stock of your finances and determine a suitable budget to start investing. This budget can be weekly, monthly, semi-annual, etc. The important thing is that it’s in proportion to your income.

For example, if you have a stable salary, you can set up recurring, automated transfers. This way, a predetermined amount, say, $75 dollars from each paycheck gets invested. Think of it as an essential expense like paying a bill.

If you aren’t employed, but you still receive income (unemployment benefits, etc.), you can use the same approach, but adapt the amount you set aside in proportion to your income. Ultimately, the goal is to be able to invest without cutting back on your essential expenses. Keep in mind that you can start investing with as little as $20 a month.

Speaking of monthly budgets, this brings us to our next tip.

2. Track down any unnecessary expenses

Minor expenses really do add up. From online monthly subscriptions to food delivery, coffee, and the latest trendy smartphone, many expenses are unnecessary  and can cut into your budget for investments. Conducting an audit to identify what you can reduce might be tedious, but it’s critical. Get honest about what you truly don’t need—be it new clothes or eating out—and you’ll be able to figure out how much you can realistically put aside each month. You might only have a few extra dollars to invest, but in the long run, those few dollars make a big difference.

3. Bet on Exchange-Trade Funds (ETFs) 

Buying stocks can be expensive. This is why exchange-traded funds (ETFs) are an easy and affordable way to get started. An ETF is a collection of stocks and/or bonds. You can buy an ETF just as you would stock. However, when you buy stock, you’re investing in one company, such as Tim Hortons or Amazon. When you invest in an ETF, you’re investing in multiple stocks or bonds that follow a specific investment strategy. For example, some ETFs may track a stock index (like the FTSE Canada Index ETF, which invests in the largest Canadian stocks). Or, an ETF may track an index for a particular industry, such as technology or healthcare. By investing in ETFs, you can effortlessly benefit from the performance of all the companies involved. 

4. Be confident in your ability to invest

A final key tip for investing on a small budget is to have confidence in yourself. It’s tempting to give up before trying, especially when resources are limited, and your idea of a successful investor is a professional in a suit who studies the markets every day. Remind yourself that investing is for everyone, and that you can invest as little as a dollar. What matters above all is your long-term investment vision. The longer the term, the more likely your money will grow. 

At the core, investing is all about one thing: letting your money work for you!

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Saving vs. investing: What’s the difference?

Sometimes “saving” and “investing” are used interchangeably, but they’re two completely different concepts. And choosing one or the other can impact your long-term financial situation significantly.

What is saving?

Saving means simply putting aside part of your income. Instead of spending everything  you earn, you set aside a certain amount to use later. There are different ways to save, but the most common is to put your money in a savings account in a bank. There is no risk to save—your money will be there whenever you want to withdraw it!. 

However, it’s important to know that in 2021, the annual inflation rate is around 1.1% on average, but interest rates for savings accounts usually range from 0.75 to 2%. Essentially, this means that the interest you could earn on your savings may not  compensate for ever increasing prices (or inflation!).

If your savings are intended to finance a short-term goal, such as taking a trip or buying a new car, annual inflation doesn’t pose much of a problem. It’s when it comes to long-term saving plans—financing the purchase of a condo, for example—that you might end up losing purchasing power.

What is investing?

To put it simply, investing means acquiring assets (stocks, bonds, property, real estate, etc) that have the potential to increase in value over time. In this case, the point is to get a return on your investment. The money deposited in a savings account earns very little, while a smartinvestment allows you to grow your money much faster. Of course, the amount an investment earns during a specific time period (or yield rate) will vary depending on the type of investment, and there is also a risk that your investment may not see any returns. 

What’s the fundamental difference between the two?

From a strictly economic point of view, saving is simply the money you don’t spend. The money you save is also  liquid, meaning it’s  available immediately. 

Investing, on the other hand, is about using your money to generate a profit. Usually this is done with a long-term plan in mind. 

Saving can be seen as a safety net that can be used to deal with the unexpected expenses that arise in life. If your car might break down or you owe money on your tax return, your savings can help you stay out of debt. A good rule of thumb for emergency savings? Aim to have the equivalent of 3 to 6 months of expenses set aside, so you can cover rent, groceries, utilities and all the other basics even if you suddenly lose your income.

If saving is a safety cushion, investing is the entire couch. Money that’s invested in the medium- and long-term is what generates a profit and can make it possible to improve your quality of life and set you up for retirement. 

Making the choice between saving and investing is a question of your needs and personal preference. Your goals, risk tolerance, age and financial situation, such as whether or not you’re in debt, can help inform your choice. Getting advice from a financial advisor will help you make cents of your situation. What’s certain is that it’s never too early (or too late!) to start investing.

Give me an example!

Take Peter and Chloe: they each have the same profession and earn a salary of $40,000 dollars a year. Every year, Peter and Chloe both save 20% of their salary, or $8,000.. While Peter puts his money in a savings account, Chloe invests her savings.. Peter’s savings account earns 1% per year, while Chloe’s portfolio earns 5%. What happens after 40 years of working? Chloe will (potentially) have accumulated $694,718 in compound interest, while Peter will have only accumulated $75,001.90, even though he is earning the same salary and putting exactly the same amount aside!

It really makes you think, doesn’t it?

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Investing early: Why it’s the smartest thing you can do

Read on as we break down how investing even a small amount early on can lead to far greater rewards than waiting to invest. But the biggest takeaway if you stop reading now? Regardless of your age, there’s literally no better time to start than right now. Not tomorrow. Not next week or month or year. Now (or yesterday if you figure out time travel).

To understand why investing early matters, it helps to understand interest. 

What is interest? 

You invest money by sending it off into cyberspace. But then what? It’s not as mysterious as it seems. That money goes to companies that use your investment to grow their business.

Interest is the money you’re paid for letting those businesses use your money. There are several ways interest is calculated. Simple interest calculates interest only based on the original amount of money that you invested or borrowed, also known as the principal. To calculate simple interest, multiply the interest rate by the principal by the given time period, usually in days or years. This type of interest usually applies to automobile loans or short-term loans.

Let’s say you invest $1,000 in a one-year GIC with a simple interest of 3% per year. The interest you earn after one year would be $30, growing your total investment to $1,030. Let’s say you decide to keep your money invested in the GIC for a total of 5 years, then you would make  $150 in interest over that period.

Here’s where interest gets more interesting…

Introducing compound interest

Compound interest is like an avalanche only far more positive: your money may start small, but as it rolls down the hill (in this case, the hill is time), it becomes bigger and bigger. 

When it comes to your money, you want the biggest hill. And the earlier you start, the bigger your hill.

Unlike simple interest, compound interest is calculated based on your principal and the interest earned from previous periods. In other words, it includes interest on interest. 

Let’s use the same example above except this time you invest $1,000 in a 5-year GIC with a compound interest rate of 3% per year. After the first year, your investment will gain $30 in interest. However, by the fifth year your investment will have gained $159 in interest, making you $9 more than with a simple interest investment.

That $9 may not seem like a huge difference, but the more money you invest (your principal) and the more time you let it sit (your hill), the more opportunity you have to earn interest and for that interest to grow. It can mean the difference of thousands of dollars, or more.

It’s worth remembering that compound interest can also work against you in certain situations, such as when you carry credit card debt, but it’s all upside when it comes to investments. Compound interest and your investments are a match made in heaven.  

Do the math (or let a calculator do it for you)

Unless you liked math growing up, you may be tempted to skip over this. But trust us: you’re going to wanna see how compound interest shakes out.

One of the best ways to visualize the power of compound interest is through the classic checkerboard math problem. Take a checkerboard and place one penny on the first square. Then two on the second. Four on the third, so on and so forth, doubling the amount of pennies on the square each day. How much money would you have by the last square?

It’s more than you may think. By square 64, you’d have: $184,464,625,987,328,000.00. We’re not even sure what the heck that number is.

Now, we’re not suggesting you double your pennies every day. But, you can use a compound interest calculator like the calculator from the Ontario Securities Commission to see how time and consistently saving can exponentially increase your money.

Say you start with a $100 investment and decide to add $10 to your account each month beginning at age 25. And then you wait to use that money until you’re 65 years old. Using a 5% interest rate compounded annually, you’ll have earned $10,629.24. 

If you make these same investments, but start at 35 (so, you have 10 fewer years for your money to grow), you’ll have earned only $4,885.95 in interest. 

Let’s be clear: it is never too late to start investing. Putting aside money for your future is smart, no matter when you start. However, do a little math and you’ll quickly realize that it pays to start as soon as you possibly can.

Increasing the amount you’re contributing to your investments can also have a major impact on your money’s growth. 

If you feel strapped for cash, you may want to dig in a bit deeper. What would it mean to pay $10 less per month on your debt and invest that $10 instead? You’ll have to do a bit more math to see if it makes financial sense for you. It may, especially if you have a loan that has a lower interest rate than the expected average annual returns of wherever you’re investing your money. 

Just think: you owe $1,000 on a loan that has 4% interest. That may mean you owe $40. But if you can invest $1,000 in an investment that has an average of 10% returns? You can make $100. Which covers the cost of interest, plus $60.

And when your avalanche gets moving, it gets moving. You’re going to need an avalanche beacon to locate your principal. “I invested this and it’s now this?” Yup, a little now can go a long way by the time you’re set to tap into that sweet, sweet cash avalanche.

Moka can help you start investing with your spare change. Download the app to get started and Moka will round up your purchases and invest the difference. 

Get ready to watch those pennies add up.