Investing is a crucial path to growing your wealth, achieving financial goals, and ultimately attaining financial independence. However, for newcomers and even long-time residents of Canada, navigating the world of investments can be daunting. Questions about what to invest in, which accounts to use, how to minimize fees and taxes, and how to safeguard your investments can be overwhelming.
If you’re embarking on your investment journey in Canada, this article is your guide. We’ll explore different investment accounts, the types of investments available, and strategies for confident investing.
In Canada, investment accounts can be broadly categorized into two types: registered and non-registered accounts.
Registered accounts offer tax-saving opportunities while your investments grow. The most common registered investment accounts in Canada include:
The RRSP is designed for retirement savings. You can contribute up to 18% of your previous year’s income, with a maximum contribution limit of $30,780 for the 2023 tax year. These contributions are tax-deductible, reducing your annual tax liability. Earnings in your RRSP grow tax-free until withdrawal.
Aside from retirement, you can use RRSP funds for home purchases (Home Buyers’ Plan) or education expenses (Lifelong Learning Plan). At age 71, you must convert your RRSP into a Registered Retirement Income Fund (RRIF).
TFSA contributions are made with after-tax income, but the earnings and withdrawals are tax-free. The 2023 contribution limit is $6,500, accumulating to $88,000 for those eligible since 2009. TFSAs are versatile, allowing you to save for various goals.
Parents can use RESP to save for their child’s education, with a contribution limit of $50,000 per child. The government matches contributions through the Canada Education Savings Grant (CESG). RESP offers tax-free growth and taxation advantages when the child withdraws funds for education.
Other registered accounts include Registered Retirement Income Fund (RRIF), Life Income Fund (LIF), and Locked-In Retirement Savings Plan.
*Non-registered investment accounts* do not offer tax deferrals on earnings but provide flexibility and advantages, like offsetting capital losses with gains.
For beginners, it’s advisable to prioritize maxing out registered accounts before considering non-registered ones.
Designed for retirement savings, RRSP contributions are tax-deductible, reducing your annual taxes. Earnings grow tax-free until withdrawal. You can also use RRSP funds for specific purposes like buying a home or funding education.
TFSAs offer tax-free growth and withdrawals, making them suitable for various savings goals.
Designed for saving for your child’s education, RESP offers tax advantages, including government grants.
If you’ve maximized your registered accounts and have additional funds to invest, consider non-registered accounts.
A basic account for purchasing investments with available cash.
Allows you to buy investments using borrowed funds, which amplifies both gains and losses. Use with caution.
Various investment types are available, depending on your goals and risk tolerance.
Owning shares in a company allows you to benefit from dividends and potential capital gains. Stocks can be bought directly through a brokerage or as part of mutual funds or ETFs.
Bonds are loans to businesses or governments, providing interest income. They vary in risk levels based on the borrower’s credit rating.
ETFs are diversified investment portfolios traded like stocks, offering cost-effective and diversified exposure to various assets.
These professionally managed investment pools offer diversification but often come with higher fees compared to ETFs.
Ideal for short-term goals or risk-averse investors, these options provide minimal risk but lower potential returns.
To begin investing, consider these options:
These online services invest in low-cost ETFs based on your risk tolerance, offering automated portfolio management at a lower cost than traditional advisors.
Ideal for DIY investors, these online platforms allow you to buy and sell various financial products at low or no commissions.
If you have limited funds, micro-investing apps can help you get started by rounding up your purchases and investing the spare change.
