Savings and Investments for Newcomers in Canada- A Comprehensive Guide

Relocating to a new country often entails a fresh start personally, professionally, and financially. As you endeavour to settle in and establish a robust financial foundation for yourself and your family in Canada, it becomes paramount to set clear financial goals.

Financial goals necessitate two fundamental components: time and money. Having a clear vision of your future living arrangements over the coming months or years can guide the actions required to construct a resilient financial support system and realize your objectives.

Determining Your Savings and Investment Strategy

Newcomers frequently inquire about the portion of their income they should allocate towards savings or investments. While there’s no universal formula to determine this, a prudent starting point is directing three to ten percent of your earnings towards a savings regimen, with periodic reassessment and adjustment as your income grows.

Understanding Savings and Investment Options in Canada

A myriad of financial products is available for saving and investing money in Canada, broadly categorized into savings accounts, registered savings plans, and investment products. Depending on your objectives and risk tolerance, you can opt for one or a combination of these options.

Exploring Savings Plans:

Savings plans in Canada, often referred to as registered savings plans, require registration with the Canada Revenue Agency to qualify for tax benefits. These plans can either provide tax exemption or deferment.

Tax-Free Savings Account (TFSA):

  • Allows tax-free investment income and withdrawals.
  • Eligibility: Residents, foreign workers, and international students with a SIN.
  • Contribution Limit: $6000 for 2020 (subject to annual changes) plus unused contributions from previous years.

Registered Retirement Savings Plan (RRSP):

  • Facilitates tax-deferred investment earnings and tax-deductible contributions.
  • Eligibility: Residents, foreign workers, and international students under 71 with earned income and available contribution room.
  • Contribution Limit: 18% of previous year’s earned income, less any pension adjustment.
Registered Education Savings Plan (RESP):
  • Allows tax-deferred investment earnings for a child’s education.
  • Eligibility: Residents, foreign workers, and international students with a SIN. Beneficiaries must be residents with a SIN.
  • Contribution Limit: No annual limit, with a lifetime cap of $50,000 per beneficiary.

Registered Disability Savings Plan (RDSP):

  • Aids Canadians with disabilities and their families in long-term savings.
  • Eligibility: Canadian residents under 60 with a long-term disability, possessing a SIN and qualifying for Disability Tax Credit.
  • Contribution Limit: No annual limit, with a lifetime cap of $200,000.

Investment Products

  • Savings Deposits:
    • A straightforward and secure choice offering easy access to your funds. Savings deposits ensure the safety of your original investment (principal) along with the interest earned.
  • Guaranteed Investment Certificates (GICs):
    • Description: GICs provide a secure fixed-income investment guaranteeing the full return of your initial investment. They accrue interest at either a fixed or variable rate, or based on a predetermined formula.
  • Mutual Funds:
    • Description: Mutual funds offer a convenient method to invest in a diversified portfolio of stocks, bonds, and other assets. These funds are managed by professional money managers, who make investment decisions on your behalf.
  • Exchange-Traded Funds (ETFs):
    • Description: Similar to mutual funds, ETFs allow investment in a pool of assets such as stocks or bonds. However, ETFs trade like stocks on an exchange, and investors can buy ‘units’ to gain proportional ownership of the underlying assets.
  • Stocks:
    • Description: Stocks, also known as equities, represent ownership stakes in individual companies. Investing in stocks enables you to participate in the company’s growth and potentially earn tax-efficient dividend income and capital gains.
  • Bonds:
    • Description: Bonds are conservative fixed-income investments issued by governments or corporations. When you purchase a bond, the issuer pays you interest for a specified period, after which they repay your initial investment upon maturity.

Each investment option offers distinct advantages and considerations, catering to various risk tolerances and investment objectives. It’s essential to assess your financial goals and consult with a financial advisor to determine the most suitable investment strategy for your circumstances.