Tips to Help You Make Your Money Grow in Canada
Canada is a welcoming and promising country that offers opportunities and freedom to immigrants. If you are new to Canada and are interested in either planning for your retirement or completing an important project, there are several investment options available to help you make your money grow in Canada.
From your first savings account to the disbursement of your retirement income, choose the investment vehicles that best suit your needs and your investor profile. Here are the different options available to help you invest intelligently.
Above all, these aim to protect your money from the ups and downs of the stock markets, but can in some cases provide you access to their growth potential. Some examples of different principal-protected investments are guaranteed investment certificates (GIC) at a fixed or variable rate of return and deposit notes.
Although the return is not guaranteed as with principal-protected investments, mutual funds are interesting if you are looking to get even more out of your savings over the long term while accepting part of the risk. With that said, investing in such a fund is still less risky than directly buying company shares on the stock market. With a mutual fund, a manager undertakes the selection of the companies that will be in his or her fund. Therefore, your money is invested in hundreds of companies (sometimes residing in the same sector or geographical market). This is a good way to diversify your portfolio and avoid putting all your eggs in one basket.
Exchange Traded Funds (ETF)
ETFs are comprised of various securities of companies traded on the stock market. They usually aim to replicate a particular index or follow a currency or another financial asset. Two characteristics, however, differentiate them from mutual fund investments. First, their low management fees are attractive to many investors. Secondly, they are traded the same way as a stock. You can quite simply buy or sell them when the stock markets are open.
> Read about the 6 tactics to use in order to maximize the benefits offered by ETFs
Save for your retirement with an RRSP
A Registered Retirement Savings Plan (RRSP) is a government-registered savings plan with features that appeal to many Canadians. Its purpose is to help you build your savings for retirement by reducing the amount of income taxes you are required to pay.
- You can contribute up to 18% of the income you earned in the previous year, subject to an annual cap.
- You can make RRSP contributions until December 31 of the year you turn 71. After that date, your RRSP must be converted into a Registered Retirement Income Fund (RRIF).
- Contributions are deducted from your income for tax purposes.
- The investment income from an RRSP is not taxable until withdrawal (ideally after retirement when your tax rate will be lower).
- You can withdraw up to $25,000 tax-free to buy or build your first home, via the Home Buyers’ Plan (HBP).
- You can also withdraw funds from your RRSP to finance training or education, under the Lifelong Learning Plan (LLP).
Learn to Take Advantage of the TFSA
Created in 2009, the Tax-Free Savings Account (TFSA) enables you to save and shelter your investment revenue from taxes, regardless of your annual income. Each year, you can make contributions within an annual limit (contribution room) established by the Government of Canada. This limit was set at $5,500 in 2016. These limits carry over each year. Thus, in 2016, a person who has never contributed to a TFSA could invest a maximum of $46,500 (or the sum of contribution limits since the TFSA was introduced).
Source: Canada Revenue Agency
To be eligible for the TFSA, you must be at least 18 years old, be a resident of Canada and have a valid Social Insurance Number. The investment income earned in your TFSA is not taxable, even if withdrawn from the account. However, it does not provide any tax benefits (unlike an RRSP).
The funds in a TFSA can be invested in a number of vehicles, from GICs to mutual funds.
Your financial planner can help!
A financial planner can help you understand Canadian investment products and solutions. Your financial planner will advise and support you in managing your finances, address your questions and concerns, and find the best solutions to power your ideas.
In addition to analyzing your financial situation, your advisor can offer you various services or direct you to the appropriate experts, as needed.
Choosing an advisor is a big decision; you want to be sure your finances are in good hands. Review the tips provided by the Autorité des marchés financiers to help you select a competent advisor.
Saving, A Basic Due Diligence
There are many reasons to put money aside: saving up for a trip, purchasing a home or preparing for retirement. Yet, even beyond these specific goals, saving is a means of being prepared. Saving allows us to shelter ourselves from the setbacks in life, to become more capable of helping those we love and to leave an inheritance to the next generation…
Whether you’re planning a permanent move, coming to work or study, or have already arrived in the country, National Bank is here to help you get settled in Canada.
Find more tips and advice about integrating and immigrating to Canada by signing up for the National Bank’s newsletter.
Edited on 22 December 2016