Financial goal-setting is an important step in your journey as a newcomer. As you start to plan for the future, investments can be a good way to put your savings to work and grow your wealth. The money you invest can grow significantly over time and provide you with long-term financial security.
Some newcomers hesitate when it comes to investing, either because they don’t fully understand Canadian investment products or are unwilling to risk their savings. However, Canada has a wide range of investment products that offer varying levels of risk and return. In this article, we cover the basics of investing in Canada as a newcomer, including types of investment products, investment plans, and tips to help you choose investments that are right for you.
In this article:
- What is investing and how is it different from savings?
- What are the popular investment products in Canada?
- What are the types of investment plans in Canada?
- How are investments taxed in Canada?
- How can I start investing in Canada?
- Tips on choosing the right investment products or plans for you
What is investing and how is it different from savings?
The concept of savings is familiar to most people. When you save, you set money aside for the future. Investing, on the other hand, is growing that money by purchasing assets that may increase in value.
One of the key differences between investments and savings is that investments typically involve some degree of risk. Investments don’t guarantee returns and, over time, the value of the asset you invest in can change, resulting in a profit or loss.
Why should I invest in Canada as a newcomer?
In Canada, the interest in savings accounts is quite low. In comparison, the growth potential for investments is much higher. If you’re saving for mid- to long-term goals, such as the down payment on a house or your retirement, you’ll likely see significantly greater returns with investments.
Moreover, investment plans like the Registered Retirement Savings Account (RRSP) and Tax-Free Savings Account (TFSA) offer certain tax advantages that make them more lucrative than savings accounts.
Things to consider if you’re evaluating investing in Canada vs. back home
As a newcomer, you may be weighing whether to invest in Canada versus in your home country. Here are some things to keep in mind while making that decision:
- Rate of return: Compare the expected rate of return on investments in both countries and make a decision that makes more financial sense.
- Tax implications on global income: As a tax resident of Canada, you’ll need to pay tax on your global income in Canada. Foreign earnings are taxed at your highest marginal rate, so you may need to pay more tax on your investment earnings if they are abroad.
- Tax benefits of investing in Canadian RRSP or TFSA: Be sure to account for the tax advantages of investing in Canadian registered plans. RRSP contributions are tax-deductible, while TFSA earnings are tax-free.
- Charges on international money transfers: If you plan to send money back home to invest or bring your investment income to Canada, be sure to account for the charges associated with international money transfers.
- Regulations around investments by non-residents: If you’re a permanent resident of Canada and plan to invest back home, be sure to check if your home country has any restrictions or regulations on investments by non-residents.
What are the popular investment products in Canada?
| Download our guide on banking, budgeting, and investing in Canada for more information and tips on effectively managing, saving, and growing your money. |
Investments are financial products you can purchase to generate returns. Depending on the type of investment product, the return you receive may be fixed or variable. Most investments also involve a certain degree of risk, which means your investment may lose value due to market volatility, demand fluctuations, or other factors.
As a newcomer in Canada, there are several investment products to consider. These include:
Guaranteed Investment Certificates (GICs)
A Guaranteed Investment Certificate is a secure investment product that guarantees your original investment and pays you a fixed or variable return for a predetermined period. You can invest in a GIC through a bank or other financial institution in Canada.
Is a GIC the right investment product for you?
A GIC may be the right investment for you if you:
- Plan to invest for a short- to mid-term (between one day and ten years).
- Want a low- or no-risk investment that guarantees your initial investment.
- Value security over return. Compared to other investment products, GICs typically offer a lower rate of return.
- Want a fixed or variable income from your investment.
 Tip:Read our article on Guaranteed Investment Certificates to learn more about the types of GICs and how they work. |
Stocks (or equity)
A stock is fractional ownership of a corporation. As an investor, you can buy equity in companies publicly listed on the stock exchange.
Stock prices are prone to volatility due to market sentiment, changes in demand, the performance (or expected performance) of a particular company or sector, and other factors, making them riskier investments. However, in addition to dividends that companies pay to shareholders, you can also earn capital gains if you sell your stock for more than your purchase price.
Are stocks the right investment product for you?
Stocks can be a good investment product for you if you want:
- High-risk, high-return investment products without a minimum investment requirement.
- To invest for a mid- to long-term period, without locking in your funds.
- To actively select companies to invest in.
Bonds
A bond is a debt instrument issued by the government or a corporation to raise funds. When you buy a bond, you’re essentially loaning money to the issuer for a fixed period at a specific rate of interest. As an investor, you can purchase bonds through banks, brokers, investment firms, or other financial institutions.
Are bonds the right investment product for you?
Bonds may be ideal for you if you want:
- A low-risk investment.
- Regular income from your investment at a fixed rate of return.
- A mid- to long-term investment (between one and 30 years).
Mutual funds
A mutual fund is a professionally-managed investment product that pools funds from many investors to invest in a portfolio of stocks, bonds, and other financial assets. When you purchase mutual funds, you’re buying a small percentage of the value of the portfolio. The fund’s operating expenses are factored into the price and you may also have to pay commission or fees when you buy or sell funds.
You can purchase mutual funds through banks, investment companies, and other financial institutions. Depending on your risk appetite, there are several types of mutual funds you can invest in, including equity funds, fixed-income funds, index funds, and balanced funds. Some institutions also offer funds with a specific theme (such as clean energy or health care), which may allow you to align your investments with your personal values, so be sure to ask your financial advisor about these.
Are mutual funds the right investment product for you?
Newcomers are often unfamiliar with the Canadian stock market. Investing in a mutual fund allows you to reap the benefits of equity returns without having to actively choose stocks. Mutual funds may be ideal if you want:
- A professionally managed investment portfolio.
- Comparable returns, but lower risk than individual stocks.
- To invest a small amount, to begin with. The minimum capital requirement may vary based on the mutual fund you pick, but some options allow you to invest as little as $500.
- The flexibility to liquidate your investment whenever you’d like.
Exchange-Traded Funds (ETFs)
ETFs are a portfolio of professionally-managed financial assets, including stocks, bonds, and more. However, unlike mutual funds, ETFs are traded on the stock market. ETFs may be actively managed, linked to a market index, or geared towards a particular industry or vertical, such as technology or emerging markets.
Are ETFs the right investment product for you?
ETFs can be a good investment product if you want:
- To pay lower fees for a diversified portfolio than you would with a mutual fund.
- Comparable returns, but lower risk than individual stocks.
- Some active involvement with your investments.
- To invest at your own pace with no minimum requirements.
Cryptocurrency
Cryptocurrency, or crypto, is a form of digital or virtual currency. Unlike regular currency, crypto is decentralized, which means it isn’t issued or managed by any particular governing authority. In recent years, cryptocurrency has gained popularity as an investment product and tradeable asset.
Several different types of crypto exist in the market, including Bitcoin (BTC), Ethereum (ETH), and Tether (USDT). However, many governments are now starting to regulate the use, ownership, and trade of cryptocurrency, and some countries, including India and China, have banned or are considering a ban on these currencies.
Is cryptocurrency the right investment product for you?
It may be worthwhile to explore crypto if:
- You’re looking for a high-risk investment, where prices can fluctuate rapidly resulting in significant gains or losses.
- You want to invest in an asset that’s liquid and can be withdrawn as cash or used to make purchases.
What are the types of investment plans in Canada?
There are several different types of investment plans in Canada, including some that are registered by the government. You can choose one or more of these based on your investment goals.
Tax-Free Savings Account (TFSA)
A TFSA is a registered savings plan where you can invest up to a certain maximum limit each year. You can open a TFSA account with a bank or financial institution.
TFSA contributions are made from your after-tax income, but investment returns and withdrawals from the account are tax-free. In 2022, the maximum TFSA contribution limit is $6,000 plus any unused contribution room you have from previous years.
You can hold a variety of financial and investment products in your TFSA account and it’s a good way to save money for short- to long-term goals, such as buying a car, taking a vacation, creating an emergency fund, or even buying a house.
| Tip: Read our article on Tax-Free Savings Accounts to learn more about the rules and benefits of investing in TFSA. |
Registered Retirement Savings Plan (RRSP)
An RRSP is a registered savings plan that can help you save for retirement or other major life expenses such as buying your first home or funding your education. You can open an RRSP account with a bank or financial institution.
RRSP contributions are tax-deferred, so you only need to pay tax on your contributions and earnings when you withdraw funds. Typically, the annual RRSP contribution limit (or deduction limit) is 18 per cent of your taxable income, up to a certain maximum. Like the TFSA, you can hold a wide range of investment products in your RRSP based on your risk appetite.
| Tip: Read our article on Registered Retirement Savings Plans to learn more about the rules and benefits of investing in RRSP. |
Registered Education Savings Plan (RESP)
An RESP is a registered savings plan that allows you to save for a child’s post-secondary education. Contributions to the RESP are not tax-deductible but earnings on your investment are tax-deferred. There’s no annual limit for RESP contributions and the lifetime investment limit is $50,000 per beneficiary. The Canadian government also matches part of your contribution, usually 20 per cent of investments made, up to $2,500 per year.
| Tip: Read our article on Registered Education Savings Plans to learn more about the rules and benefits of investing in RESP. |
Non-registered investment account
Non-registered accounts are not registered by the government and don’t offer any tax benefits. However, you can invest without any contribution limits and withdraw your funds at any time. These are typically direct investment accounts that you can open with a bank or other financial institution.
How are investments taxed in Canada?
While most registered plans offer some tax advantages, here’s how earnings from investments in non-registered accounts are taxed in Canada:
- Interest: You may earn interest on investments like GIC, bonds, or savings accounts. There is no special treatment for interest income in Canada and your earnings will be taxed at your highest marginal tax rate. This makes interest the least efficient form of investment earnings.
- Dividends from Canadian stocks: Many companies share their earnings with shareholders in the form of dividends. The government gives individuals preferential tax treatment on dividends through dividend tax credits to offset taxes the issuing company has already paid on those earnings.
- Capital gains: Capital gains are the earnings you receive when you sell your investment for more than the price you bought it for. These earnings receive preferential tax treatment and only 50 per cent of capital gains are taxable.
- Foreign interest and dividends: Earnings received from foreign investments are fully taxable at your highest marginal tax rate.
| Filing taxes for the first time as a newcomer? Download our guide to filing taxes in Canada for answers to commonly asked tax questions. |
How can I start investing in Canada?
Depending on how familiar you are with investment products and plans in Canada, you can choose one of three investment approaches:
Self-directed investments
This do-it-yourself approach gives you complete freedom over how and where you invest. To get started, you can open an investment account with a bank or other financial institution. Be sure to ask about commissions and other charges before you start investing.
Services like RBC Direct Investing provide you with a secure platform and access to tips and information. You can choose an investment plan and start investing online or through a mobile app.
Getting advice from a financial planner
Many newcomers rely on financial planners to help them set financial goals and make investment decisions. You can speak to a financial advisor for guidance on the right investment approach for you.
For instance, RBC MyAdvisor is a free digital advice platform that helps RBC customers create a customized financial plan and connect with an advisor. If you’re looking for a professionally-managed portfolio, RBC InvestEase gives you access to financial professionals who can choose, buy, and manage your investments for you.
Using the services of a wealth management advisor
Wealth management services can help with more sophisticated investing or wealth management needs, such as growing your money for retirement and protecting your wealth through estate planning or tax management. A wealth management advisor can help you create a personalized financial plan and an investment portfolio with a wide range of investment choices.
Tips on choosing the right investment products or plans for you
Getting started with investments in a new country isn’t easy, but with these tips, you can work towards maximizing your returns and keeping your money safe:
Take your financial goals into account
Before you start investing, it’s always good to review your financial goals and when you anticipate needing the money. Is your goal short term, like saving for a vacation or emergency fund, or long term, such as saving for retirement? If you’re saving for short-term goals, you’ll want to avoid investment products or plans that have a lock-in period or a high degree of risk. It’s also important to create a budget and determine how much you can comfortably set aside for investment each month.
Understand investments’ risk levels
As an investor, your risk tolerance may depend on a variety of factors, including how long you plan to stay invested, your savings goals, and the risk-to-return ratio of an investment product. Make sure you’re comfortable with the level of risk an investment offers before you make a purchase. If you’re unsure whether an investment is right for you, speak to a financial advisor for guidance.
Put your money where your values are
Your values can be an important factor when it comes to deciding the types of projects or companies you want to invest in or stay away from. Some mutual funds or ETFs offer the opportunity to invest in specific types of businesses or avoid investing in certain industries or sectors. Consider this in addition to the other financial and risk criteria before choosing an investment opportunity, and discuss options with your financial advisor. This will help you ensure your savings are invested in a future you believe in.
Evaluate investment products’ fees and costs
In addition to the money you’re investing, make sure you take into account any fees, commissions, or other costs that you’ll need to pay on your investments. As a newcomer, the extra fees may be worthwhile if it means you benefit from the expertise of a financial expert or investing in a managed portfolio, such as mutual funds or ETFs.
Understand the tax treatment for your investment and earnings
Depending on the investment plans and products you choose, your investments and earnings will be treated differently. Many newcomers prefer to max out their RRSP and TFSA contributions first, to reap the tax benefits these plans offer. If you’re investing in non-registered plans, make sure you understand the tax implications of your earnings and report them accurately in your tax return.
Choose between active and passive investing
Some individuals prefer to choose their own investments while others are more comfortable with managed investments such as mutual funds, ETFs, or through an investment planner. Select the approach that works best for you based on your risk appetite and understanding of Canadian investment products.
Diversify your portfolio
Since most investment products have some degree of risk involved, it’s always good to have a diverse portfolio that includes a balance of equity, debt, and other investments. This can help you build a portfolio that has lower risk and the potential to grow at the rate you expect.
Seek advice, if needed
As a newcomer, getting started with investing can be daunting, but help is always available if you need it. A financial advisor can provide ongoing financial guidance, answer specific investment-related questions, or manage your investment portfolio for you. A good financial advisor can help you create a customized investment plan and find investment opportunities that meet your needs.
Unlike savings accounts, which offer relatively low interest rates, investments put your money to work and give you an opportunity to earn greater returns. As a newcomer, it may take time to familiarize yourself with the investment products and plans available in Canada and choose ones that are right for you. With these tips and the services of a financial advisor, you’ll be better prepared to get started on your journey towards financial success.
