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What's the Right Investment Product for Me?

A common question clients often ask - to which there is no easy answer, as there are a

host of variables to review, starting with developing some idea of each client's risk

tolerance. Then the client's investment timeline and their intended purposes for the

investment, things like a rainy day fund or a down payment on a vehicle, for a house,

or to buy another quarter or long term for their eventual retirement income needs.

An excellent place to start for one's short term need is to build a rainy day fund using a

high-interest savings account, ideally to have three months bill payments as a buffer

against getting sick, disabled or laid-off. Next, if saving for the down payment for a

vehicle or a mortgage, etc. repeat the process and decide if a regular savings account

or a tax-free savings account is the best option here?

The question often asked, is it better to invest in a Tax-Free Savings account or an

RRSP? A tough question at the simple answer is it depends, consider a wage earner in

a relatively low tax bracket forty-plus years old who is never going to max out his

RRSP contribution room! He could be better off maxing out his TFSA contribution room

because he can withdraw funds from his TFSA without any tax consequences and

reinvest the same amount the following year back into his TFSA along with that year's

allowable contribution amount! Whereas money taken from an RRSP would be fully

taxable, and the associated contribution room lost forever.

For longer-term needs, such as saving to upgrade to a bigger home, to start a

business or for retirement - there are dozens of options available. If you want minimal

risk – then into a savings account or a GIC, next up the investment ladder are bond

funds, with many variables. Next, consider balanced funds with a 60% equity/40%

fixed income mix, or onto equity funds in a wide range of categories. Then into

specialty funds with a significantly higher risk, two considerations here are your risk

tolerance and investment timeline? If you need access to the money reasonably

quickly, better in a fully accessible savings account.

One thing to think about with investing is the impact of inflation, with inflation averaging

around 4% you need your investments to grow long term at a rate higher than this, or

you going backwards! I continually run into people with TFSA's stuck in bank savings

paying less than 1% when they could reasonably expect 5 to 7% in a balanced fund.

The simplest way to save money is to have it automatically debited from your bank

account every month - before you get to spend it on anything else!


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