Adapting investment strategies as a newcomer in Canada will help you access financial security and also let you fulfill your financial goals. Newcomers arriving in this country have to especially look into their long-term security in terms of finances and investments. They must invest wisely to avoid a crisis in a new country.
Several newcomers feel scared of investing their money because they’re not fully aware of the investment products available in Canada. Moreover, they tend to feel worried about risk in investments.
They might be looking forward to saving for their down payments and education expenses or preparing for their retirement journey. In any case, there are a variety of investment alternatives available for newcomers in this country.
Investment strategies as a newcomer in Canada – comparing investments and savings
Investment implies using your saved money to buy assets and eventually growing that money through the increased value of the assets over time. The chief difference between these two is that savings is exactly what you save and keep aside. On the other hand, investment doesn’t guarantee returns, and the asset’s value also alters with time.
The need for investment as a newcomer in Canada
The savings account does not typically offer higher returns. Whereas investments, especially for long-term or mid-term goals, have an elevated potential. This could either be your home’s down payment or retirement. Investments in these cases will give you higher returns as compared to savings.
The Registered Retirement Savings Account, as well as the Tax-Free Savings Account, provide a rise in tax advantages that are far more tempting than the savings account.
Key takeaways of the three main investment plans in Canada
Canada’s three chief investment products include the Tax-Free Savings Account, Registered Retirement Savings Plan, and (RESP) Registered Education Savings Plan.
Registered Retirement Savings Plan
This plan revolves around retirement savings and is the investing channel for workers and even self-employed people in Canada. The pre-tax money becomes a part of the RRSP and eventually turns out to be tax-free till they withdraw the amount. During this time, the tax rate is marginal only. However, simply possessing money in this RRSP doesn’t reflect a convenient retirement. Furthermore, it only guarantees that these investments will remain untaxed as long as the individual doesn’t withdraw the fund.
Additionally, the RRSP includes a broader range of investments, such as individual stocks, bonds, and mutual and exchange-traded funds.
Tax-Free Savings Account
The Tax-Free Savings Account came into existence in 2009, and any contribution within this account remains prohibited from tax deductions. This plan applies to individuals who are eighteen years and older and also possess a Social Insurance Number. Further, the plan enables them to secure money (tax-free) for the rest of their lives. The amount within this income, whether contributed or earned, is typically tax-free, and it remains so even at the time of withdrawal. These contributions or incomes could be investment or capital income. However, one must note that administrative or any other fee related to the TFSA account is not tax deductible. This also includes any other amount borrowed to invest in the TFSA account.
Registered Education Savings Plan
The Registered Education Savings Plan is applicable for long-term savings and is most appropriate to enable people to save for their children’s education. This could be education after high school, such as CEGEPs, colleges, trade schools, universities, and apprenticeship programs. However, it is also possible for adults to open this plan.
Opening a RESP account for your children implies you will become the account holder or subscriber. This will make the account holder eligible for a series of advantages, such as an Education Savings Grant. They will also be able to access the Canada Learning Bond. The expenses that fall under these RESP benefits include rent, transportation, tools, tuition, and books.
The best tips on selecting the right investment strategies as a newcomer in Canada
Even though starting your investments in Canada as a newcomer might sound incredibly challenging and confusing, knowing the following tips will help you find the right investment strategies and plans:
Straighten your financial goals
Newcomers must first ensure that they determine their budget for each month for investments. Before doing anything else, they must be sure whether they have long-term or short-term financial goals. This will only help them understand whether they can take the risk for investments or not. For example, short-term goals might not align with investment strategy. The lock-in period is higher, so they shouldn’t risk it. However, investments align well with long-term goals like retirement savings.
Examine the risk levels of investments
The three primary factors will determine your tolerance for the investment risk. These factors include the duration you plan to invest, the return ratio of an investment product, and your saving goals.
Once you make a purchase, there’s no looking back. Hence, it is crucial to understand and fully assess whether you’re ready to take in the risk levels of your investment. If you feel uncertain regarding an investment, connect with a financial advisor for further guidance.
Active and passive investments – which is better?
Several individuals seek to choose their individual investments, whereas others find managed investments like investment planners, ETFs, and mutual funds more convenient. The choice will be yours as you will need to understand Canada’s risk intensity and each investment product.
Examine properly the investment products’ costs and fees
Investments might have additional charges in the form of fees or commissions. Newcomers must keep this in mind before they get into investment products; however, these costs will be worth it as they will eventually only benefit them.
Conclusion
As a newcomer in Canada, it is best to become acquainted with the investment products and plans to make the right choice. Investments will help you get greater interest; however, consulting a financial advisor cannot be ruled out.
