Four smart ways to invest $1,000

Four smart ways to invest $1,000
National Bank Invest, Personal Invest, Personal

Have $1,000 to invest and wondering how to make your money grow? Maybe you’re even wondering whether it’s possible! You probably think that you need experience and a large amount for it to be worth investing. Think again. You can actually grow your money without much effort!

If you’re wondering where to start, here are four solutions that could earn you interesting returns over the long term.

Save up quickly and pay less income tax

Like to plan ahead? If so, an RRSP can be a good savings tool for your retirement,  and can also help you pay less income tax. For example, if you have an annual salary of $35,000, your $1,000 will save you about $285 in income tax (in 2017), whereas if you earn $50,000 a year, you’ll save $371.

Does this money have to stay in your RRSP until you retire? Subject to certain conditions, you can withdraw up to $25,000 to buy a property without paying tax (under the Home Buyers’ Plan – HBP) or up to $20,000 to go back to school (under the Lifelong Learning Plan – LLP). It’s a good way to take advantage of an RRSP while you’re still young!

The more you earn, the more profitable an RRSP is.

For example, if your marginal tax rate is 40%, a $1,000 contribution will approximately generate a $400 tax saving. To get a multiplier effect and grow your capital faster, it’s best to contribute the same amount again the following year, which will bring you additional tax savings.

Tax-free money

If your net income is lower, you won’t save much tax by contributing to an RRSP. Therefore, a TFSA may be something to consider. Any amounts you withdraw are added to your TFSA contribution room the following year. So, a TFSA is a good tool for saving money for shorter-term projects such as home renovations or buying a car. You can also use it to build up an emergency fund.

TFSAs and RRSPs are two complementary savings tools whose respective advantages and disadvantages can offset each other, depending on your financial situation. A TFSA allows you to invest in a wide variety of investment solutions and take advantage of their tax-free growth. While your contributions are not deductible from your income taxes, the earnings on your investments are not taxable, even after withdrawal.

What about your children’s future?

Planning on paying for your children’s post-secondary education? Then you need an RESP!

Not only will your children thank you later, the government will also give you a helping hand! An RESP is doubly attractive because when you contribute, you receive subsidies from both levels of government. This money is deposited directly into your child’s RESP account. For example, with the Canada Education Savings Grant (CESG), you receive 20% on the amount you invested into an RESP, up to a maximum of $500 a year ($1,000 if you have contribution room from a previous year), and $7,200 for life.

The Quebec Education Savings Incentive (QESI) provides 10% of the net contributions paid into your RESP, up to a maximum of $250 a year or $3,600 for life. Additional amounts are available for low-income families.

An RESP also enables you to reduce the tax you have to pay on accumulated capital you withdraw.

Stock market investments at lower cost

Want to invest in the stock market but don’t have a lot of experience? There are products tailored to your needs. Ask your financial advisor to help you find the one that’s right for you based on your risk tolerance and investment goals.

Exchange traded funds (ETF) have lower management fees than mutual funds and no opening or closing fees.

A big advantage: ETFs give you access to a diversified basket of securities. They are quoted on the market, but their level of diversification reduces the risks associated with holding individual stocks.

You can also sell your ETFs at any time during stock market opening hours, with no penalty. So it’s a flexible investment product and a good way to gain experience while minimizing your risk.

To learn even more, how about trying out some trading sites or mobile apps?  Many of them allow you to open an account with a few hundred dollars, and they charge very low brokerage fees. There’s a wide range of options for both novice and seasoned investors.

Regardless of your investor profile and goals, there are a variety of ways you can invest your $1,000. Now it’s up to you to explore which one suits you best.

Edited on 14 August 2017

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