No matter how much or how little you have to invest, you want your money to help you achieve your goals. With a little financial planning, you can get there.
And happily, it’s not that hard to do! It’s simply a matter of knowing what you want and who you are as an investor, and using some simple savings and investment tools — like TFSAs and RRSPs — to help you get there.
Identify your goals
The starting point is to know what it is you are saving and investing for. Is it a comfortable retirement? A home? Your child’s education? A new car? Identifying your goals helps you determine your investment horizon — how much time you have to save. That can affect the types of investments you choose. The shorter your investment time, the more liquid you’ll want your investments to be.
How RBC can help: Sit down with an online calculator — like the RBC Savings Calculator — to figure out how much money you need to achieve your goal, how long you have to save and how much you need to save each month or week. An RBC advisor is always here to help you with an in-person consultation. Locate an advisor near you.
Know your style
If recent market events have taught us anything, it’s to invest within our own personal comfort zone. If you’re a conservative investor and you put your money into high-risk investments, you might achieve your financial goals but you won’t enjoy the ride. Choosing investments that match your investor profile and help you achieve your goals is the sweet spot everyone should aim for.
How RBC can help: We can provide personalized advice to help you identify your investing comfort zone. We also offer a wide range of investment options to suit every investor’s style and financial situation, including Savings Deposits, Guaranteed Investment Certificates (GICs), RBC Mutual Funds, such as RBC Select Portfolios and RBC Managed Portfolios.
Plan for the long-term
Investing for the long-term helps to smooth out the ups and downs that are inevitable, while helping you to achieve important long-term goals, such as creating a comfortable retirement or building a legacy for your children. Over time, the market has trended upward, so staying invested over the long-term is generally more reliable than trying to time the market.
How RBC can help: RBC Financial Planning can assist you with creating an overall wealth management plan that takes into account all of your goals and assets. RBC Estate Planning can help you create the documents and tax planning strategies you need to preserve your wealth and care for your heirs.
Take advantage of tax breaks
The built-in tax incentives of Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) can really help reduce taxes and grow your money.
TFSAs let you save up to $5,000 a year in a registered account that earns returns tax-free. That may not sound significant. But suppose you were to save $5,000 annually for 20 years, and you invested that money with a 6% rate of return. In a non-registered account, you’d end up with an impressive $156,258. But in a TFSA, you’d have $194,964 — almost $40,000 more!*
TFSAs have many other tax and financial planning advantages, providing you with many strategic ways to use them to your benefit:
- Flexibility. You can withdraw funds from your TFSA, and re-contribute the following calendar year, with no penalties or tax payments. This makes a TFSA a great place to save two or three months’ salary as your emergency fund, as well as to save for short-term goals like a car or vacation. A TFSA can also be used for long-term planning by complimenting your RRSP.
- Income splitting. If you have a spouse or common-law partner, you can use TFSAs as an income splitting tool. The higher-income spouse or common-law partner can give money to the lower-income partner to contribute to his or her own TFSA, and earnings will grow tax-free. This strategy will not affect any tax credits claimable on a dependent spouse or common-law partner. The lower-income spouse or common-law partner owns the TFSA and can withdraw funds at any time, without paying tax. You can also provide a gift to adult children.
- Additional retirement income. Amounts withdrawn from your TFSA don’t affect federal government benefits or pensions, nor are they taxable. This makes the TFSA a great way to supplement your retirement savings. Use a TFSA to supplement your RRSP if you have no more contribution room available. Or, if you still have unused RRSP contribution room, consider making the maximum RRSP contribution you can and use any income tax refund generated to contribute towards your TFSA.
TIP: If you haven’t yet opened a TFSA, you’ll be able to catch up for previous year’s contribution this year. That means you can contribute up to $10,000 in 2010.
How RBC can help: Review our convenient RRSP/TFSA comparison table, for an at-a-glance summary of the key features of each. Or try the TFSA calculator to see how much you could save. RBC also offers a range of RRSP and TFSA investment options, including Mutual Funds, Guaranteed Investment Certificates and Savings Deposits, to suit your investment personality and financial goals.
Invest regularly and often
For many of us, thinking about our investments isn’t something we want to have to do very often. By formulating a plan and then making the investing process automatic, you’ll take the worry out of saving for the future. Paying yourself first also ensures that you take care of those important but far-off goals, before the demands of today use up all your money.
How RBC can help: Set up a savings plan to make automatic contributions, with TFSA-Matic™ or RSP-Matic®. Call 1-800-ROYAL 1-1 or visit your local branch.
Open your TFSA or RRSP today, and take advantage of these powerful savings and investment tools. Already have an RRSP? Make an online RRSP contribution now, and beat the 2010 rush!
* Assumes tax rate of 32% outside of TFSA, with interest income taxed annually. All contributions made at beginning of year. Annual compound rate of return of 6%. For illustration only and not indicative of future returns. Actual tax rates and rates of return will vary.
Financial planning services and investment advice are provided by Royal Mutual Funds Inc. (RMFI). RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec.
® Registered trademarks of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada.
|
