Table of Contents
Investing is more than putting money in the bank and forgetting about it. You’re making serious monetary decisions that will affect your life for years to come. You want to make the right ones. It is important to know when to trade, what to trade, and how to trade.
We will give an overview of what to do, what not to do and the basic overview of investing. We will also touch on some of the more popular investment methods, as well. These investment methods can prove to be a great asset to have, especially when it comes time to retire.
While investing, there are some things to keep in mind. Now is the time for your future. Many younger generations are not considering retirement, or even have a retirement or investment fund to use or live off. This is alarming since this money is necessary to keep living comfortably once you can stop working.
Here are some well tested tips for first-time investors looking to grow their financial portfolio.
It is important to remember not to jump into investment fads. There are numerous companies that may talk you into investing with them, but without the proper research, you won’t be able to make an informed, knowledgeable decision.
Choosing an investment account to put money into does not have to be tough. You’re easily able to choose between TFSA, RESP or RRSP because you don’t have to choose at all.
All three of these savings accounts are investments that are made to serve different purposes: TFSA is for an all-around savings account, RESP are for education expenses of your child’s, and RRSPs are perfect for those who want to have more money for retirement.
Simply put, choosing is not something you have to do. You’re easily able to sign up and invest in all three of the options.
Well known throughout Canada, RRSPs or Registered Retirement Savings Plan is a perfect asset for collecting and saving income while obtaining certain tax benefits from the account. RRSPs are known as a tax advantage investment to make due to this because your money is tax-deferred.
The money is tax deferred until it is withdrawn from the account. This account can be started by anyone over the age of 18. It is made to grow with you as you move along in life, and is a secondary account to the other retirement plans you can get from your place of employment.
Learn more about RRSPs to find out if they’re the right investment for you to make.
This Registered Education Savings Plan is an investment plan that helps pay for future post-secondary education of a child. It is government sponsored. It is also a tax-free way to save towards something in the future. Though, it is not a retirement plan, it is a financial plan for a child’s future that will end up helping them out in the long run.
These accounts will hold your money tax-free until you’re ready to withdraw. The beneficiary of these accounts is usually the child, not the adult that is starting the account up for the first time. There is no limit on the number of plans you can have, but they do cap the lifetime contribution amount to $50,000 per plan.
Learn more about RESPs and if they’re right for the investing you’d like to do.
TFSAs are Tax-Free Savings Accounts that are tax-advantaged and available to Canadians. These are a more open savings account to invest in. They do not have a specific purpose for the money you’re putting away and saving, unlike RESPs or RRSPs. This account can grow tax-free off the money you put into it over your entire lifetime.
Not just that, but any withdrawals that you make from the account are also tax-free. Learning more about this specific savings account and comparing it to the other options is ideal. You may find additional benefits you can only get from one or the other.
Learn more about TFSAs and learn if they’re the right investment account for you to use.
Stocks and mutual funds are both more well known that the other investment accounts. It is thought that mutual funds are best for those who contribute to their RRSP on a regular basis. There are no fees or commissions you must worry about with these funds. Keep in mind, there are numerous types of mutual funds to choose from. You want to choose which is best for you and through the provider you feel the most comfortable working with.
A stock or equity is a security that gives the owner a fraction of the corporation depending on how much they purchase. This is a stock in a company that brings in a fraction of the money that the company makes, as well. This then adds up over time and you can sell the stock if you no longer want to have it or want to get instant money for it.
Either one of these options can provide a way to invest and increase your overall worth. This helps not only cover the costs of the future for you, or for your child, but can also help you stay afloat with all your current expenses.
In addition to stocks and mutual funds, another investment opportunity; especially in contrast to stocks are bonds. These savings bonds are guaranteed as an investment. Issued through the federal and provincial governments, they pay out a fixed rate over a fixed period of time.
For example: Provincial governments issue high quality bonds, while the Government of Canada sells Canada Premium Bonds and Canada Savings Bonds.
The issuer guarantees the full value of the bond and the interest that is offered with it, no matter the amount you invest into it.
They can be cashed in many, if not all, financial institutions at any date after receiving them. However, the longer you hold onto the bond, the more interest you're able to earn. Cashing them in early means missing out on some of the interest you could have gotten.
You can purchase savings bonds through the government at most financial institutions. However, they may only be available during a few months out of the year. Some employers might also offer an automatic payroll deduction plan that helps to put money towards government savings bonds.
Learn more about the stocks and mutual funds available throughout Canada and see for yourself if these investments are the right ones for you to put your money into.
Cash accounts are important to have for those who want to invest using settled cash. This is an account that is all cash in savings that can be used as an asset against anything borrowed. These accounts can be through any financial institution that you choose, and can also be used to purchase your other investment assets with because it reduces fees for many of them.
A GIC is a deposit investment that is sold through Canadian financial institutions and trust companies. They have a low-risk fixed rate of return. They are also insured and guaranteed by the Canadian Government.
You'd deposit money into an account and earn interest on the money deposited. They are simple to grow. The only catch is that they have to be deposited in over a fixed length of time. The interest rates usually go along with how long that time is. The longer, the more interest you would get.
Liquidity is important for any accounts, and when it comes to how much liquidity you get, it varies across the different spectrum of accounts you own. The easier it is to turn your accounts into cash is how liquid the asset is.
Some accounts have specified lengths of time where you are unable to withdraw money from the account. Some would provide no payouts or returns if you try to withdraw early or charge penalties.
Other accounts make it easy for the owner to pull cash from, and then deposit it back in, whenever they'd like. This allows them access to easy cash on hand when they need it. This is why it is important to have a mix of these types of liquidity options.
You want to be sure to have long-term ones that make you keep the cash tied up into the account until it has matured, while also having accounts that earn interest on them but can also be withdrawn from early, should you need it. Both types of accounts are available at various financial institutions throughout Canada.
It is important to have a good mix of assets in your portfolio. Asset diversification is one of the highest recommended things to do for those considering investing. Having your money spread out into different investments can help to ensure that if you lose money on one of them, the others will help to reduce the amount lost.
Putting your money into only one or two investments is generally not ideal (unless you're first starting and this is what you currently have, not what you're sticking with) because you could potentially lose all of your money, including the amount invested. This is too much risk.
For example: Having a few bonds, stocks, cash accounts, mutual funds, and RESP or RRSP accounts.
The effect on total risk exposure can be devastating for most. Not diversifying a portfolio of options and only choosing to invest with one specific type of investment, savings plan, or other asset can mean not just losing money, but perhaps not having any for future plans or issues that might arise.
Limiting exposure can maximize profits for investors, so many seasoned, experienced investors look to diversify and reduce the risks of investing with only one or two options. This mix of assets is important to ensure that the maximum profits can be achieved.
Regardless of which investment option you choose to go with, you will find that each of these offer the right way to gain a bit more money into your account. Learning more about each of them in depth can provide more information on which would be ideal for you to use. Check them out with a professional at your financial institution or work with another company to start your investment accounts today.