FINANCIAL LITERACY

Saving & Investing

Saving and investing work together to grow your money. Start with a financial plan where you define your short-, medium-, and long-term spending and savings goals. Set your savings goals first so you can put your money to work through a variety of investment options.

Make saving automatic

One of the best ways to start saving is to set up a pre-authorized debit with your bank. Ask about other automatic saving features they may offer.

Pay yourself first

Set a goal to have 5-10% of your paycheque automatically go into your savings. If that's out of reach, start smaller. You want to build a life-long habit of paying yourself before you start spending.

Save on each transaction

Many banks offer the opportunity to save each time you use your debit card. Have 5 cents or 5 dollars transferred automatically to your savings. It's surprising how quickly small amounts adds up.

Choose the right plan

There are two types of saving and investment plans—registered and unregistered. The plan you choose will have an impact on the amount of income tax you pay. You can use both plans if that makes the most sense for you.

  • You can invest an unlimited amount of money into a variety of investment choices.
  • This is NOT a tax-sheltered investment account.
  • Gains and losses, dividends and interest must be declared for income tax purposes.
  • There are two main types of accounts:
    • Cash accounts for basic investing
    • Margin accounts where you can borrow money to purchase securities
  • You can invest a predetermined amount of money into a variety of investment choices.
  • This account is tax sheltered, which means it is registered with Canada Revenue Agency and detailed in the Income Tax Act. 
  • Any growth is tax-deferred until you start drawing on that account.
  • The most popular types are tax-free savings accounts and registered retirement savings plans:
    • Tax-free savings account (TFSA):
      • Annual TFSA dollar limit (2019 to 2021): $6,000/year
      • Penalty for over-contribution is 1% per month on excess funds
      • Unused contribution room is carried forward to future years
      • Your contribution is made with after-tax dollars. There is no deduction on your tax return when you contribute the money.
      • Tax-free
      • Withdraw at anytime without a penalty
      • Contribute for your lifetime
    • Registered Retirement Savings Plan (RRSP):
      • Deducation limit (2021): 18% of previous year’s earned income (maximum limits apply)
      • Penalty for over contribution is 1% per month on excess funds.
      • Unused contribution room is carried forward
      • RRSP contributions are tax-deductible
      • Tax-deferred: money grows tax-sheltered, but withdrawals will be taxed as income (unless buying first home or continued education)
      • Must be converted to Registered Retirement Income Fund (RRIF) at age 71

Types of investments

  • A Guaranteed Investment Certificate (GIC) is a Canadian investment that offers a guaranteed rate of return over a fixed period of time.
  • GICs are most commonly issued by trust companies or banks.
  • Due to its low risk profile, the return is generally less than other investments such as stocks, bonds or mutual funds.
  • A mutual fund is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets.
  • Operated by professional money managers, who allocate the fund’s investments and attempt to produce capital gains and/or income for the fund’s investors.
  • A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in a detailed document referred to as a prospectus.
    • Document can be obtained directly from fund companies through the mail, phone or email.
    • Basically, it shows the fund’s past performance, objectives, strategies, managers, etc.
  • ETFs are like mutual funds in that they pool the money of a number of investors, then invest in baskets of stocks and/or bonds and are affordable.
  • ETF share prices fluctuate all day as they are bought or sold; this is different than mutual funds which trade once a day after the market closes.
  • ETFs offer lower expense ratios and fewer broker commissions than buying the stocks individually.
  • The key difference between mutual funds and ETFs, however, is that ETFs are exchange-traded and you purchase them through a stock market exchange.
  • A bond is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.
  • Bonds are used by companies, municipalities, states and governments to raise money and finance a variety of projects and activities.
  • Owners of bonds are debtholders, or creditors, of the issuer.
  • A share is a type of security that signifies ownership in a corporation and represents a claim in the corporation’s assets and earnings.
  • Buying or selling stocks comes with a brokerage commission or “trading fee”. Most financial institutions stick close to $5-$10 per trade.
  • Reading stock charts is the hardest thing for novice investors.
  • Support and resistance levels along with moving averages generally gives good reversal signals.
    • Support level – The price of stock finds “support” as it falls. More likely to “bounce” off this level.
    • Resistance level – The opposite of support. Price tends to fine “resistance” as it rises. When one of these levels is broken, price tends to continue in that direction.
    • Moving averages – Line on the chart that represents the average price over a period of time.
Financial Goal Calculator

The Financial Consumer Agency of Canada has developed a goal calculator to help you manage your debt and savings goals.

Use the calculator
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