There are people out there who invest. Really invest. They play the market, they pull elaborate schemes with their mortgages and RSPs. Who are these people? I have no idea how they do it and how they think.
But I do know there’s a big range of options for people like me who want to care for and grow their money. You don’t need to be market saavy or have a huge portfolio. You just need a good bank or investment advisor and you can build a good financial future.
Opening up a tax free savings account at your bank or with your advisor is dead easy. You have to fill out some forms, because this is a registered account so it must be done in person. Why register it? The money you make over the years on interest in your TFSA is tax free. And there’s a limit to what you can put in every year ($5,000 right now), so the government needs to know what you’re up to.
But this is not merely a savings account, as the name would imply. This savings program allows you to invest the money any way you like. You bank will default to putting your contributions into a savings-style account, with minimal guaranteed interest. That’s fine if you want to use the money soon. But if you’re using a TFSA as part of a long term savings plan, or for retirement, you have time to take a bit more risk and possibly grow the money. If that’s the case, read this TFSA GUide, talk to your bank or investment house and have the money placed in a balanced or even more aggressive investment fund.
Again, a registered retirement saving plan (RRSP) is simply a registered program through the government that gives you a tax advantage. (In this case, what you put in now offsets your taxes now — but you’ll pay tax when you withdraw money when you’re retired.) You can do whatever you want with the money, investment wise.
Banks and investment houses have people behind the scenes who, at least in theory, know what they’re doing, and move money around from stocks, bonds, gold, etc. Financial institutions organize this into plans which you buy into. So you might put most of your money in a balanced fund, but have your banker put a smaller amount in a more aggressive plan. They all have names like Select Conservative, or Canadian Balanced. Figuring out the ins and outs of these funds is beyond most folks: you need to work with a representative you trust to guide you to the right one.
Probably one of the simplest ways to save money, guaranteed investment certificates (GICs) are a typical go-to investment for both short and long term savings. This type of investment lets you save a chunk of money for a set time (30 days or longer) at a set interest rate. It’s a great way to guarantee a rate, and you often get a higher interest rate than you would in a mere savings account. If you go with a non-redeemable GIC you can’t pull the money out until the term expires. But there are redeemable options available that allow you to access the funds before the end of the term, they just pay a lower interest rate. There’s no risk with this type of investment: your interest and principal is guaranteed.
While many people use GICs to put aside a chunk of money for an upcoming renovation, vacation or business launch, they can also be used longer term.
GIC Laddering is one way to use this product and offset risk for many years. This is how it works: you divide your money up into fifths and put each fifth into separate GICs with staggered maturing dates of one to five years. When the first comes mature in on year, provided you don’t need the money, you reinvest it into a five year GIC (which has the highest interest rate over the shorter terms). You continue to do this each time a certificate comes due. This gets you taking advantage of the best rates in a totally secure situation.
Best to talk personally to a broker or your banker to set up a ladder. It’s not overly complex, but it’s a strategy that takes a bit of planning and thought over the years.
All it takes is a chat with your advisor and you can become a savvy investor. You may not ever understand the ups and downs of the stock market, but you can better understand how to save and protect your money.
Writer for RateSupermarket.ca