If you are just beginning to build an investment portfolio and retirement savings, it can be overwhelming to sift through all of the information. If you want solid, guaranteed investments and you want to start small, only an insurance company can offer you the security of segregated funds for as little as $50 a month to start.
Figuring out what type of plan to invest in can be challenging. Should you start an RRSP in your twenties? How young should you start saving for your child's education? We've got the answers for you here.
Depending on the registered plan that you are investing in, a segregated fund will guarantee most or all of your initial investment before any growth. This means that your funds are insulated against any hard market crash like some of the ones that we've seen in recent decades, unlike mutual funds that you purchase through other financial institutions. If you are just starting out and don't have a lot of money to invest, this is a great choice for a secure and growth-oriented investment.
Segregated funds can be used for Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs) or Registered Education Savings Plans (RESPs). They may also be purchased on their own as a non-registered plan.
Which do I invest in first?
Establish a set of goals before investing to determine which plan is right for you. If your goal is to purchase your first house, you can use some of the funds from your RRSP for a down payment using the Home Buyers Plan. This makes an RRSP a more attractive choice than a TFSA. If your goals are more short term and involve travel, home renovations, or something that has a short timeline, a TFSA may be ideal.
Whatever your decision, try to put at least $50 a month in an RRSP account so that you are saving something towards your retirement. Compound interest turns that $50 into a lot more money by the time you retire, especially if you start when you are in your twenties or early thirties.
Shortly after you have a child, you should consider starting an RESP for them. There are government programs that will match a percentage of the funds that you add to their savings plan, so take advantage of these as early as you can. You will miss many great opportunities if you start an RRSP for them when they turn nine as opposed to when they are newborn. Plus, you'll be missing out on the growth potential of compound interest.
What about stocks?
One of the best ways to learn about investing is to start trading a small amount online. Take an amount of money that you are prepared to lose and follow the investment advice of experts to purchase stocks that may offer a return. Questrade is a good place to start; their trading fees are far less than similar services offered through financial institutions. Remember that smart investing requires research of companies and the numbers associated with each stock.
What are some good resources on investing?
There are many questionable resources out there on investing, especially online. Think twice if a self-styled "expert" is pushing a particular stock or a company aggressively. The following resources are good places to start, but keep a cautious frame of mind when you are doing your research. If it’s too good to be true, it usually isn't true.
Morningstar is one of the more respected investment websites in Canada.
Investing news and advice from The Globe and Mail.