Week 15 - Group RRSPs, etc.

I wanted to touch on the options that you might have for saving money at work. I don't think that enough people understand how good some companies can be at helping us save money.

If you work for a company, see if they have a profit sharing plan, a group savings plan, matching plan, etc. There could be an opportunity to make great returns on your investment dollars, regardless of how they actually are invested.

Take for example company X. I will use numbers that I know exist, so you can get a real idea of how some companies do things. Company X has a program where employees can set aside a certain dollar amount from their pay cheque, and X will add 50% to that dollar amount to a maximum of 6% of your pay, which is then invested in X's company stock. So let's say you make a good living - $100,000 per year and you set aside the maximum: 6%. That means you have saved $6,000 of your own money each year as a start. Now remember, X matches half that amount, which means you are now up to $9,000 at the end of the year. Think of this as a return on an investment. If you DON'T do this and choose instead to save money on your own, you would have to make a 50% return in one year to just match that plan!! No chance.

So let's say you work for the company for ten years and do the same thing every year. At the end of ten years, you would have $90,000 saved up, assuming zero growth in the company's stock price! But let's say your company X is a good quality company and the stock might actually grow over that time period, say 5% per year. At the end of year 10, you will now have more than $118,000 set aside. And this only cost you a total of $60,000. That means your annual rate of return on the portfolio is better than 11% per year. And that's if the stock only returns 5% and doesn't play a dividend!

The bottom line is that most companies have some kind of profit-sharing plan or group savings plan. You might have to keep your money there for a certain time period before you can access it but it's still well worth it. I would advise you to look into this before you consider doing any saving outside the company.

Often, the company isn't publicly traded so you can't buy stock in the company with your contributions. In this case, the company will outsource the money to external money managers, who can often do a better job than 5% per year. They are normally in the form of mutual funds though, so you will pay fees.

It's a small post this week because everyone's plan is different. Look into yours and spend some time on the phone with your HR department to see how your plan can benefit you.