Pique ’n Your Interest 

Free market drive-by

Sometimes it pays to be broke. With very little in the way of savings and investments I've been relatively isolated from the economic crisis so far, though some people I know are less fortunate and have lost their jobs or had their hours cut, or had to rethink their retirement plans. In ways big and small this downturn will affect everyone.

So far, between my RRSP and an investment account I set up a few years ago when I paid off my student loan, I've lost about a third of the money I had in the market - more than $5,000 but less than $10,000.

Luckily I cashed out my RRSP savings two years ago to put a down payment on my home, otherwise I would have lost at least twice as much to the money hole.

I'm not a huge risk taker and invested conservatively, but still I got played for a sucker by a market that really had nowhere to go but down when the real estate bubble popped. The thing is, I knew about the bubble. I even wrote about the bubble a few times for this column, but I didn't really understand how banks were tied up in it. Besides, my investments underperformed from the beginning, even without the crisis, and I wanted to earn that money back before I sold. Like an optimist with a gambling addiction I was determined to walk away a winner.

I should have known better, but I actually believed the hype that markets always go up over time even if they fluctuate in the short-term. I think we're all in agreement that this was a little more than a fluctuation, the kind of financial catastrophe that can bring down whole countries.

Like a chump I also bought into the whole mantra that you're an idiot if you don't invest, that you lose the money you save because of inflation and the low interest you get from the banks. It made sense at the time, even if it sounds kind of stupid now.

These days the careful savers look like financial wizards, and I feel like an idiot. The three per cent interest from banks they'll get this year and next is far better than the over 30 per cent loss I've had to swallow. It could take years, if not decades, for the value of those investments to recover, at which point the people who banked their money will be so far ahead that I doubt I'll ever catch up.

Here's some sobering math for you. Say you have $10,000 to put away at three per cent. The first year you earn $300 in interest, giving you a total of $10,300. The next year you'll get $309 to bring the total to $10,609, and so on until you have about $13,468 after 10 years and earn about $400 interest per year. That's a 34 per cent increase on your original investment, which is actually pretty good when you take the long view.

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