Canada financial system has in built designs to help people, including newcomers to invest their income and savings to generate returns.
Let us start off by learning about the registered saving accounts in Canada: the RRSP, the RESP, and the TFSA. Plus, other options for investments.
1.Registered Retirement Savings Plans (RRSPs):
A RRSP is a registered investment account that lets you save for your retirement by deferring taxes on your investment. It is a dedicated money invested for fast growth and lower tax bill as it is tax deductible. Any missed contribution each year can be rolled into the next.
Tips:
RRSP contributions are tax deductible.
RRSP savings grow tax free
RRSP can be used for down payment for first home in Canada (HBP).
RRSP can be used for Lifelong Education Plan (LLP) for oneself or spouse
Taxes RRSP is lower after retirement.
2. Registered Education Savings Plans (RESPs):
A RESP is a special type of savings plan that is designed by the Canadian government for parent(s) or guardian to save for a child’s post-secondary education through a strategic saving investment being supplemented by financial boosts from the federal government and, in some cases, by provincial governments also.
It is a strategic investment because parents/guardians burdened with the responsibility of sponsoring their wards through college/university education can make plans for a stress-free sponsorship with RESP contributions rather than depending on Student Loans that looks cheap and accessible at the beginning but burdensome at the end.
Tips
Twenty percent ($500) annual contributions by the federal government
Tax deferred on investments until withdrawal.
Lower tax possible when withdrawn by the child for education purpose
3. Tax-Free Savings Accounts (TFSAs)
Another investment type is Tax-Free Saving Accounts (TFSA), a fantastic opportunity to save and invest money, tax-free. Each year after the age of 18, an investor has annual contribution room for TFSA. Any amount deposited into this contribution room is TFSA is tax-free. If one exceeds the contribution room however, it will attract tax penalty.
It is exciting to note that it is not only the amount contributed that is tax-free, but investment earnings are also tax-free.
Any year of no contribution can be rolled into the next.
OTHER INVESTMENT OPTIONS
4. Guaranteed Investment Certificates (GICs):
A GIC, is a type of Canadian investment that offers a guaranteed rate of return. As such, it is a reliable way to make money on your investments.
However, since the capital invested is guaranteed, return on this investment is usually lower than what might be expected.
5. Mutual funds:
A mutual fund is a type of investment where multiple investors contribute to a large pool of money which its then invested and managed by professionals. Mutual funds consist of securities (financial assets) including stocks, bonds, money market instruments, and more.
Investing in mutual funds can be a great option if one is looking for greater potential to grow investment on a long-term basis. A well-diversified mutual fund portfolio can also help to minimize investment risk. Nevertheless, mutual funds are always sensitive to movement in the markets, so there is always a risk of losing the original amount you invested.
6. Stock market investing:
In recent years, it has become easier to manage one own investment(s) in the stock market. With user-friendly online investing platforms, one can buy, sell, and trade quickly and easily.
Managing one’s own investments in the stock market makes sense if one has sound understanding of the market. But if unfamiliar it might be better to invest through one of the earlier options outlined above.
7. Permanent Life Insurance:
This is the smartest investment ever because it combines insurance with investment for life (permanently). It provides a wide opportunity of maximizing investments with great possibilities.
There are two types of permanent life insurance namely:
1. Whole Life insurance: Whole life insurance plans offer permanent life insurance protection that comes with fixed level premiums which are payable for a given number of years as well as insurance protection that is there for life.
2. Universal Life Insurance: Universal life provides two key financial planning solutions: life insurance that provides a tax-free death benefit, ensuring your family has the protection they need, and a savings component that permits tax-deferred investment growth, allowing for long-term wealth accumulation. When you deposit premiums into your policy, part of that money goes towards your savings, and part of it pays for your insurance protection.
The savings portion of the plan can be invested into Treasury Bill Interest Options, Fixed-Rate Interest Options, and Index Interest Options. Index Interest Options allow you to earn an interest rate linked to a variety of underlying investments, which matches one’s investment profile.
Above all, being mindful of the institution used: Bank or Specialist and or, insurance will most times determine the results/returns.
For your one-on-one financial discussion & advice, please contact: GM Financial Center (WFG), 130 Champlain Street, Dieppe, NB
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