I want to start saving for the future, what plans are the best or is there a webpage that compares them? I’m 23 in Canada so I have a lot of time to save. I don’t quite understand the advantages and disadvantages of RRSPs and Canadian bonds? Are there other options as well?
Lots of good info here.
It depends when you want to access the funds.
If you’re saving for retirement (ie - 40 years from now) an RRSP is a pretty good way to go - you get a tax deduction and because of the long time line, you can opt for funds that tend to be a bit more volatile but have a higher ROI.
If you’re saving for a shorter term goal (eg school, car, house, etc), GIC’s can be a pretty good option offering a fairly high ROI with more flexablity - you can potentially take them out sooner, etc.
If you’re unsure of your income in the future, or you’re not sure when you are going to need/want the money, there are now some good “savings” accounts that offer decent interest - less than you pay in fees at any rate.
You need to determine exactly what you’re investing for.
Finally, if you have a large chunk of change, and are uneasy with risk, real-estate can be a pretty safe long-term investment. As long as you do a bit of research and don’t purchase in a bubble, you can be pretty safe this way. (Obviously, nothing is a sure bet - not even stuffing your cash in your mattress.)
RRSP versus bonds is not an either/or choice. You can hold bonds inside an RRSP. I have a self-directed RRSP; that way I can hold whatever mix of investments I want inside it.
Since the OP is looking for imformed opinions, let’s move this to IMHO.
samclem
With respect to RRSPs, purchase them through an insurance company rather than a bank or other investment broker, and designate a beneficiary who is your spouse, child, grandparent, or parent. That will give you some protection from creditors should you hit hard times. Check out section 158 of the Saskatchewan Insurance Act: WARNING: HUGE PDF FILE http://www.qp.gov.sk.ca/documents/English/Statutes/Statutes/S26.pdf
Quasimodal, by “Canadian Bonds” do you mean “Canadian Savings Bonds”? I’m assuming you do.
An RRSP lets you defer taxes while you save, in two ways. First, any contribution that you put in it is deducted from you taxable income in that tax year. That may give you some tax savings, depending on your personal tax situation. As well, once the money is in the RRSP, any income it earns, whether interest or dividends, is not taxed within the RRSP. It’s only taxed when you eventually remove it from the RRSP. That greatly increases your ability to grow your savings.
Canada Savings Bonds don’t have any of those tax advantages. They are safe, since they’re guaranteed by the Government of Canada, but you don’t get any tax deferral by purchasing them, and the interest they pay is taxable. As well, they tend not to have very high rates of interest. So I personally don’t use them as a long-term investment. They are handy places to cache some money for a “rainy day” fund, since they’re cashable anytime (the ordinary type, that is; there’s also a “premium” CSB that pays a higher rate of interest, but is only cashable 1 month out of the year).
You also asked about other options. There’s loads of them. You can invest in stocks, or in other types of bonds, or mutual funds. However, they don’t have the tax deferral advantage of RRSPs. The interesting thing about an RRSP, though, is that you can invest in all of these through your RRSP, depending on what type you get. Some RRSPs just offer standard mutual funds. That’s not a bad way to start out, since you don’t have to make a lot of decisions. But if you want to, you can branch out into a self-directed RRSP - where you can use the money to buy different investments, and keep them within the RRSP, for tax shelter.
I’d be reluctant to advise you what you should do - this is just a message board, after all. It all depends on your own savings goals and what you’re comfortable with, how much decision-making you want to do, etc. Why don’t you ask around with a few banks, trust companies, insurance companies, to check out your options?
(BTW, Muffin, not sure I would agree with your advice, in light of The Registered Plan (Retirement Income) Exemption Act, S.S. 2002, c. R-13.01.)
Here’s a link to the Canada Savings Bonds web-page. They come on sale again in October; usually available until March 31.
I think that the The Registered Plan (Retirement Income) Exemption Act does a nice job at extending the protection of s.158(2) of the Saskatchewan Insurance Act to non-insurance prouducts by protecting the RRSP from seizure in most circumstances, but I don’t think that it extends s.158(1) protection against garnishment of payouts from an RRSP annunity.
First of all, congratulations! You have made a smart decision to save.
You don’t really have a long time to save…check out a “what you need to retire as far as money goes” website…it’s absolutely amazing how much money you will need.
Canada Savings Bonds pay little interest.
If you have stock options at work, buy them under employee purchasing deals.
RRSP’s are a good thing but it’s long term.
Compare banks and negotiate interest rates. Don’t settle for crappy interest rates on your savings. ING AND ICICI bank are banks I deal with - high interest, no service charges.
Get in good with a bank manager or financial investor. Check out low risk mutual funds.
You can never have enough information. Educate yourself as far investing and negotitation go.
If you buy stocks and get a dividend, put it back into the stock purchase plan, don’t use it as income. Every little bit helps.
Buy property when you can…don’t string yourself out financially but, if you get a chance, step in to the real estate market.
Anyway, my two cents! Once again, smart decision - hope you do well!
Talk to an investment advisor - it’s free - check out your bank and also one who is independent (i.e. not with a bank).
Ours recommends a combination of RSPs and long-term investments (which he manages for us). The tax benefit of RSPs is great in the present, but can suck in the future, when you have to pay taxes on the money. (That’s kind of how he explained it - sorry I can’t do better - that’s why we have a financial advisor).
Either way, educate yourself at least to the point where you feel comfortable with your decisions. I think a combination of short-term savings (bonds etc), long-term investments, and RSPs is the way to go.
Good luck!