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Your Guide To Different Investment Options in Canada

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Introduction

There comes a time in everyone’s life when they have to start thinking about investing.

Once you have a steady income and have surplus funds saved up, it’s important to start planning your financial future.

Whether you choose to simply save your way into retirement or take a proactive approach to multiply your savings through investing, there are a lot of options you can choose from as a Canadian resident, native or foreign, to secure your financial future.

In today’s article, we will look at the most popular investment plans available in Canada, the types of investment assets worth looking into, and the investment approaches you can adopt.

Disclaimer

The equity investments are subject to market risks and may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor. So please invest at your own risk.

Investment Plans Available in Canada

Canada has some of the largest and most reputable financial institutions in North America.

Although they differ in how they operate, in general, they offer similar versions of essentially the same investment plans.

These investment plans not only allow you to save money but also to leverage said money to invest in other assets with the hope of a return, all while taking advantage of government incentives.

The most popular investment plans in Canada are categorized into registered and non-registered investment accounts.

Registered Investment Accounts

These include:

Registered Retirement Savings Plan

A registered retirement savings plan essentially works as a retirement fund.

Contributions to these accounts tend o be tax deductible, and the taxes are deferred until withdrawal.

Registered Education Savings Plan

A registered education savings plan is used to set aside funds for post-secondary education costs for a child.

Contributions to these accounts are not tax deductible, but the taxes are deferred until withdrawal.

Tax-free Savings Account tfsa

Tax-free savings accounts are a type of registered savings account provided in Canada in which earnings and withdrawals from these accounts are tax-exempt.

You can use this account to save up for retirement, buy assets such as a car, and even have as an emergency fund.

Non- Registered Investment Accounts

This is essentially an account you can freely contribute or withdraw from at your discretion without the limitations imposed by federal government regulations like in registered investment accounts.

This freedom comes at a cost, though, since non – registered accounts have no tax advantages like the registered accounts.

Type of Investment Strategies.

Once you’ve set up an account with a financial institution, you can now use it to start investing.

Investing in the stock market is a very good way to create income and grow your savings into wealth.

There are several ways you can go about investing in the stock market.

  1. Self-directed investing, where you manage your investment portfolio yourself.
  2. Hire a financial advisor to advise you on an appropriate investment strategy.
  3. Use a robo advisor, which is an algorithm-driven wealth management service to invest money on your behalf.
  4. Hire portfolio managers to invest on your behalf and pay management fees.

The options above depend on the individual investor and how much capital they have.

Different financial institutions will offer some or all of the services above, and it is important to do your research and choose a financial institution that fits your particular investment needs.

Canada has many online brokerages that offer all these services in-house.

For example, a brokerage firm like wealthsimple offers all investment accounts, portfolio management, and even robo-advisor services to their clients. essentially being a one-stop investment platform.

Not to mention having incentives such as reimbursing the $150 outgoing administrative transfer fee on investment account transfers valued higher than $5000.

Once you’ve chosen an appropriate investment strategy, it’s now time to look at the types of investments available to you.

 

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Types of Investments

Investments can be categorized in two ways, low-risk investments and high-risk investments.

Depending on your risk tolerance as an investor, you should choose the one that works for you and your investment goals.

High-Risk Investments

High-risk investments are investments whose return and capital are not guaranteed.

The investor has to be willing to risk the complete loss of their investment should outcomes turn negative, and they also receive higher rewards when positive outcomes are experienced.

mutual funds

A mutual fund is a fund run by a professional that pools investor funds and uses these funds to invest in securities.

Stocks

Also called shares or equities. A stock is a piece of a business that’s bought and sold on the stock market.

exchange-traded funds

An exchange-traded fund is a fund that invests in securities and at the same time is itself traded on the stock exchange as well.

This means that its value, much like a stock fluctuates depending on the stock market.

 

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Low-risk investments

Low or no risks are investments where the investor’s capital and its return are very close to guaranteed.

These include:

Guaranteed investment certificates gics

A guaranteed investment certificate is a contract between an insurance company and an investor designed to protect their invested capital. These come at a variable or fixed interest rate.

Bonds

A bond is a certificate issued from a loan an investor makes to a company in return for set interest payments made on that loan before the loan is repaid on the date it matures.

Treasury bills

Treasury bills are similar to bonds only difference is now the loan goes to the government. In return, the investor gets interest payments on the loan.

These tend to be low risk due to the unlikelihood of governments defaulting on their loans.

These can be short, mid, or long-term in nature.

high-interest savings accounts

This is a type of account that offers above-average interest rates than other savings accounts.

High-interest savings accounts are usually offered by smaller banks that predominantly operate online.

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Conclusion

There are a lot of things to consider when planning your financial future and especially when it comes to investing and although it seems complicated at first, once you have an appropriate road map navigating your way becomes a lot simpler.

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