Whether you are looking to purchase your first car, build an emergency fund, or save for your children’s tuition, investing is key to achieving your financial goals. Investing ensures present and long-term financial security for you and your family. In Canada, there are many investment options to help you save and grow your money, and it’s important to get started early.
Types of Investments
Choosing the appropriate investment plan that suits your needs and investor profile is crucial. For starters, here are a few popular plans among newcomers in Canada:
| Tax-Free Savings Account (TFSA) | Registered Retirement Savings Plan (RRSP) | Registered Education Savings Plan (RESP) |
Non-Registered Investment Account |
|
|---|---|---|---|---|
| Overview | Allows you to easily save for your short-term and intermediate goals. Learn more here. | A retirement savings plan where your returns are tax-sheltered. Learn more here. | A tax-sheltered plan to help you save for your child’s post secondary education. Enables receipt of contributions from the Canadian government. Learn more here. | A general investment account where you can choose to invest in a variety of assets. Learn more here. |
| Are investment earnings taxed? | No | No | No | Yes |
| Are contributions tax-deductible? | No | Yes | No | No |
| Are withdrawals taxed? | No | Yes – subject to income tax at the time of retirement, when your tax rate will be much lower. | Yes – at your child’s tax rate, only grant amount and investment earnings are taxable. | Yes |
| Expiration | No expiry. | Must be withdrawn when you turn 71, via the Registered Retirement Income Fund. | Your child may decide not to attend post-secondary education or decide to enrol later. An RESP remains open for up to 36 years. | No expiry. |
4 tips to get started on your investing journey:
There is no one-size-fits-all solution when it comes to investing, therefore, sufficient groundwork is important. Here are a few things to keep in mind before you start:
1. Budget and save before you invest
Practical and effective investing should always begin with budgeting. You will have no room to invest if all of your money is already spoken for. Read our blog to learn the basics of budgeting in Canada.
2. Set clear financial goals
Begin by creating a list of financial goals, then assign a time frame and cost to every goal. This will inform your investment strategy by helping you identify the type of investment plan appropriate for meeting your goals.
3. Research about your investment options
You’ll need to have a healthy understanding of your investment options in order to make coherent decisions. Research about the contribution limits, tax treatment, and any risks of the investment. If you are unsure, consult a financial advisor.
4. Pay off your high-interest debts
It’s important to pay off any high-interest credit card debt, student loan debt, or other liabilities before you begin investing. Paying off these debts will improve your monthly cash flow and ability to withstand investment risks.
The appropriate investments can help you reach your financial goals and provide financial security in the future. Taking the time to learn about investing can help you understand the market and adjust your expectations. Lastly, remember to be patient – investing is a long process and returns don’t happen overnight!
Our webinar on Investments and Goal setting is customized for newcomers to help you learn about different types of investment plans and financial products in Canada. Check it out now for tips and recommendations on investing.
