Upside: Investments in a registered retirement savings plan (RRSP) have two major advantages: contributions are tax-deductible, and the growth of your money is sheltered from tax. Plus, depending on your contribution, you may get a hefty tax refund.
Downside: RRSPs can still be risky to your personal finance situation, and it depends on how you invest your funds. "And if you're in a lower tax bracket, your returns will be low too," says Laurie Stephenson, a financial planner with Stephenson Daigle Financial in Halifax. "It may be better to save your RRSP room for higher-income-earning years and consider using the tax-free savings account tax shelter instead."
Upside: For every dollar you put into a registered education savings plan (RESP), the government will add a 20 per cent matching grant of up to $500 annually, or $7,200 over the life of the plan.
Downside: If your kids don't end up going on to postsecondary education, you'll lose the grant money.
Upside: A tax-free savings account (TFSA) allows you to set aside $5,000 a year tax-free throughout your life.
Downside: Unlike an RRSP, there's no upfront tax deduction.
GICs and bonds
Upside: They offer peace of mind because they're government secured.
Downside: Their low rates of return won't make a huge difference in your personal finance.
Upside: Equities have the potential to reap high returns, and over the long haul they usually perform well.
Downside: They can test your risk tolerance. "Everyone says they think long term when investing in equities, but when the market goes wonky, they want to pull out," says financial planner Diane McCurdy, president of McCurdy Financial in Vancouver. "When the market falls, you have to stay the course." A good rule of thumb for determining what percentage of your personal finance portfolio to invest in equities is 100 minus your age, she says.
Page 1 of 2 -- Putting all your investing eggs in one basket? Find out why Grandma's advice is still good today on page 2.
Upside: "Our grandmothers knew what they were talking about," says McCurdy. "You don't want to put all your eggs in one basket. Having a mix of funds protects your investments."
Downside: You can diversify too much – too many funds, stocks or bonds may be hard to keep track of. McCurdy says to aim for eight to 10 funds.
Maximize your foreign content
Upside: International investing provides geographic diversification, which helps manage the ups and downs of the market over the long haul and offers potentially higher returns.
Downside: Too much foreign content exposes you to potentially volatile foreign currencies.
Anne Bokma, a self-employed writer with no company pension, borrows every year to sock money away in her RRSP. She applies the refund to her kids' RESPs. This year her goal is to open a TFSA.
|This story was originally titled "Looking to Invest?" in the February 2012 issue. |
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