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The bull market that ended abruptly in late February has left us with some bad habits.

Strong returns from stocks, coupled with low rates on savings vehicles, led some people to put money in the markets when it should have been in something safe, such as guaranteed investment certificates or savings accounts. Here are three examples that come from recent reader contacts.

You’re saving for a house down payment

Even now, with stocks way down from the peak earlier this year, it’s too risky to put your house down payment fund in the markets. The temptation to do so is easy to understand: Houses cost a lot in many cities and catching a wave in the stock market will make you a lot more than the 2 per cent or less you get from savings accounts.

But stocks are going to be volatile for quite some time to come because of uncertainty over how quickly the economy will rebound from the pandemic-drive recession. In March, we saw some of the ugliest days for stocks in recent memory. Don’t expose your house down payment money to the next round of panic on the markets.

You’re building a fund to pay for home maintenance or renovations

A reader reports that he and his partner are doing something really smart – putting away a bit of money every month to create a home maintenance fund. He asks what type of investment vehicle should be used for that type of saving.

“The money currently goes into an income mutual fund in a TFSA that is apparently not as safe of an investment as I thought it was,” he wrote.

We’ve seen in the pandemic how the entire financial system can be thrown into turmoil in a way that makes even bonds and other seemingly safe investments perform strangely. The lesson here is that even conservative investments like bond and income funds are too volatile for money you need to be able to rely on.

Your kids are graduating from Grade 10

If you’re a parent or grandparent with a registered education savings plan, aim to have all or most of the holdings in the plan converted to cash or GICs by the end of Grade 10.

The point of doing this is to protect the money in the RESP – your own contributions, matching federal grant money and investment gains – from being annihilated just ahead of it being needed to pay for the first year of college or university. That’s essentially what’s happened in 2020 with RESPs that are heavily invested in stocks.

Consider setting up a four-year ladder of GICs at the end of Grade 11, with annual maturity dates at the beginning of August. That way, you have money available just as tuition bills come in.

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