One of the best ways to grow your income and reach your financial goals is to invest, but taking the first step on any investment journey can be intimidating. That’s why Coast Capital, Canada’s largest credit union by membership, is here to answer the investment questions keeping you up at night and to provide the real advice you need to ensure you’re on the right path.
With Canada’s inflation rate at a historical high, how can I save enough money to start investing and protect my portfolio from the ups and downs of the market?
As inflation drives up the price of almost everything around us, more than half of Canadians feel like they can’t keep up with the cost of living. If your household budget is being squeezed from all angles, starting to invest can be tough. But it’s never too late to start and no amount is too small. So where to begin?
You can start by considering short- to medium-term investments like a Guaranteed Investment Certificate (GIC) or a Tax-Free Savings Account (TFSA). GICs are term investments, meaning that you deposit your money for a certain amount of time — ranging from one month to 10 or more years — in exchange for a higher interest rate, payable when the GIC ‘matures’ at the end of the chosen term period.
If you’re looking for more flexibility, you could also explore a TFSA, a savings account where any interest you accumulate is tax-free. While contributions aren’t tax-deductible, earnings and withdrawals are not subject to tax which can help you grow your income and set you up for a better financial future.
It’s also important to keep in mind that both your income and risk tolerance will change over time, along with your goals. Making adjustments based on your position and the behaviour of the market is part of the process.
I’m finally ready to invest but am fairly risk-averse. How can I get started in a low-risk manner?
All investments have some degree of risk so determining your financial risk tolerance is critical to your success. Consider factors such as your age, timeline, goals, life stage, and existing savings, as they can help you reflect on how much risk you can comfortably handle. Generally, the longer the timeline, the more market fluctuation and risk you can handle.
Your risk tolerance will inform your asset allocation — the process of dividing the money you have in your investment portfolio among equities (higher-risk investments), fixed income (lower-risk investments), and cash that is necessary for your day-to-day life. Speaking to a financial advisor is a great way to kick-start the process. They can also help you navigate the ups and downs of the markets, provide real advice, and find the investments that fit your risk profile and goals. There are also some great free online tools like Coast Capital’s Money Chat, which can help you understand your current financial health, where you want to go, and how to get there.
What percentage of my income should I be investing into my RRSP every year?
Aiming to contribute at least 10% of your gross income to retirement savings each year is a good rule of thumb. However, your contribution will depend on several factors, including the age at which you want to retire and the rate at which you’re able to save. There are tools to help you determine the amount of savings you’ll need to retire comfortably, like Coast Capital’s Retirement Planner Calculator. From there, you can work backward to signpost your savings goals.
While many Canadians focus solely on RRSPs, it’s a good idea to consider utilizing a TFSA as well in order to build a well-rounded retirement plan. The main benefits of this approach are that contributions to a TFSA are tax-free and withdrawals can be made at any time. Additionally, the TFSA contribution limit is $6,000 per year for each person over the age of 18 and unused contribution room carries forward (unlike the RRSP) which provides additional flexibility and room for growth.
I’m a new resident in Canada at age 35. How can I start saving for retirement to prepare for a better financial future?
It’s never too late to invest. Whether it be stocks and bonds or mutual funds and ETFs, there are a variety of options to choose from that can help you reach your medium- and long-term goals. Start by determining which type of investment account is right for you. With a TFSA, you can grow your investments and have the flexibility to withdraw your money at any time. An RRSP allows you to grow your nest egg and reduce your tax bill until you withdraw from it.
Your earnings may only take you so far, but your financial goals — from an emergency or rainy-day fund to saving for your retirement — can come into reach when you use the tools at your disposal to effectively save and invest. And remember, you don’t have to do it alone. Expert tools and advisors are available to help you figure out how to get started.
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This is an estimate based on the guidelines at the time of publication.
This article is provided for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, fees, and other investment factors are subject to change without notice, and Coast Capital Savings Federal Credit Union is not responsible for updating this information. All third-party sources are believed to be accurate and reliable as of the date of publication and Coast Capital Savings Federal Credit Union does not guarantee the accuracy or reliability of such sources. Readers should consult their own professional advisor for specific financial, investment, and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products. Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual funds are not guaranteed or insured by any financial institution, government or other deposit insurer. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.