Of course, it’s important to have enough disposable income to have a great time away from your professional career. Time with family and friends is precious and creating cherished memories is more important than anything. However, it’s also important to think further ahead to the future and ensure that you are doing yourself justice by making your personal income grow in the long-term.
Fortunately, in Canada there are many ways you can invest your existing wealth intelligently to generate compound growth that prepares you for your retirement. Within this article we shine a spotlight on several investment vehicles you could use to build your portfolio.
Registered Retirement Savings Plans (RRSPs)
One of the easiest ways to financially plan for your future is to open an RRSP. It’s one of the top tips expressed on our very own site. This is a savings plan that’s formally recognized and registered with the Canadian government. The primary benefit of an RRSP is that you can set aside funds for your retirement whilst minimising the amount of income tax you must pay.
According to the National Bank site, RRSP holders can set aside almost a fifth (18%) of their annual income. Contributions can continue to be made into an RRSP until the end of the year in which you become 71 years old. All annual contributions to your RRSP are tax-deductible from your annual salary. At any time it’s possible to take out as much as $35,000 from your RRSP as part of the Home Buyers’ Plan (HBP) to acquire your first property, or to kick-start a self-build project.
Tax-Free Savings Accounts (TFSAs)
TFSAs are one of the most recent investment options for Canadians. Launched over a decade ago, they give individuals like you the ability to set aside savings for the future without being penalized with tax, regardless of the size of your annual earnings. This year, you can put a maximum of CA$6,000 into a TFSA. If you don’t do so one year, this can carry over to the following year, giving you CA$12,000 to invest next year if you so wish. Eligible applicants for a TFSA must be aged 18 or older, reside in Canada, and have an active Social Insurance Number.
A Principal Protected Note (PPN) is a fixed-income security that many Canadians view as a zero-risk investment opportunity. PPNs guarantee you a minimum return the same amount that you originally invest, meaning that it’s impossible to lose money. Of course, whether you make as much money as you would in an RRSP, TFSA, or via any other investment methods listed, is up for debate.
Foreign Exchange (Forex)
Historically, trading and investing foreign currencies used to be exclusive to major hedge funds and high net-worth individuals. Thanks to state-of-the-art technological advancements, it’s now possible for anyone to become an investor in foreign exchange (forex). Forex allows you to trade forex “pairs” e.g. GBP/USD (Pound Vs Dollar). The first currency in any trading pair is the currency you are investing in, against the value of the second. Forex is typically influenced by economic and political events.
The most recent high-profile example being the UK’s Brexit vote, which saw the GBP fall considerably against both the Euro and the US Dollar. It’s possible for everyday “retail” traders at home to trade forex pairs without big bankrolls thanks to leverage. The leading brokers will offer leverage to help you maximize profits using small initial trades. To find the most reputable forex brokers, the TopRatedForexBrokers site, for example, lists the highest rated operators for forex newcomers living in Canada and anywhere else in the world. Not only lists the highest operators but also explains the benefits of forex demo accounts, compare brokers and offer the best forex bonuses.
Exchange Traded Funds (ETFs)
Another way of dabbling in the stock markets is to purchase ETFs, which are securities of all kinds of listed companies. It could be a cluster of leading corporations, known as an index, or several individual companies. ETFs differ from mutual funds (more on them shortly) in that they incur minimal management fees and can be bought and sold the same way as physical stocks on the exchange.
Mutual funds are also a popular investment option for Canadians looking to the future. While they may not guarantee your initial investment in the same way as PPNs, they can yield bigger returns over the long-term than principal-protected investments. You will, however, be required to hire a mutual fund manager to oversee your investments, given that they may choose to diversify your money across dozens of companies, and prevent you from placing all your eggs in the same basket.
Investing in your future can give you financial peace of mind. In the event of unforeseen circumstances, you can be sure that you have the wherewithal to handle life’s peaks and troughs, or leave enough in the bank to give to the next generation.