You don't have to be an expert in finance to make your savings work for you. All you have to do is follow a few common-sense ground rules!
Diversify Your Portfolio
Variety is the secret for lowering risk, increasing stability and boosting the performance of your savings investments.
92% of a portfolio's return is related to how the assets in it are allocated. So use your head and diversify the asset categories, geographic regions, activity areas and management styles.
Also, take advantage of opportunities that arise all over the planet by opening your portfolio to 98% of world capitalization. Especially since, as of 2005, you are no longer limited to 30% of foreign content in your RRSP!
Spread Out Your Maturity Dates
To increase the potential return and protect yourself as much as possible from market fluctuations, spread out the maturity dates of your investments. It will give you more flexibility to seize good investment opportunities.
Diversify According to Tax Advantages
Who doesn’t want to lower their tax bill? Well, it's possible if you invest wisely. But before doing so, you should know that there are three types of basic investment income:
- Interest income
- Capital gains
Each type of income is subject to a different tax system. So, depending on how you juggle your investments, you will lower your tax bill. Or not.
|Tax Advantages of Investment Income|
|Types of Income|
(profit that a public company pays to its shareholders)
(profit resulting from the sale of a security)
|Types of investments||
|Tax advantage||None—the income is entirely subject to tax||Preferential treatment of dividends from a Canadian source1||Only 50% of the income is taxed|
|Tax owing on $10,000 in investment income2||$3 840||$2 405||$1 920|
|After-tax income||$6 160||$7 595||$8 080|
|Conclusion||Integrate into a registered plan (RRSP, TFSA, etc.) so that your investment grows taxe-sheltered3||Hold in an unregistered plan and immediately profit from the tax advantages|
Persevere With Your Investments
When it comes to investing, the key is to think long term. This is especially true when your investments have no guaranteed capital. It's wise and almost always pays off.
When the markets fall, not only should you resist the urge to panic, you should also take advantage of the downturns to invest if you have any capital available. You'll find investments at laughably low prices that are very likely to rebound when the markets turn around again.
Keep an Eye on Your Affairs
A portfolio should grow as you grow. Accordingly, you should go over your investment portfolio at least once a year, to see how it’s doing, to find out what’s new and to make sure it still suits your needs and priorities.
You should also do this any time there is a major change in your life, for example if you get married, have a baby, change jobs or retire.
Open a Tactical Account
Saving and investing can quickly become complicated to manage, especially when the investments start adding up. Avoid all this with a Tactical account4. It lets you consolidate all your investments into the same portfolio and it comes with a detailed quarterly statement.
1. Dividends from foreign sources are 100% taxable.
2. Based on a salary of $50,000 taxed at the marginal tax rate as per the 2008 tax table.
3. You will be taxed when you redeem the plan, when your income—and consequently your personal tax rate—will most likely be lower. As a result, you will pay less tax than if you were to declare it now.
4. Annual administration fees of $30 may apply to registered accounts; however, this fee is waived if your portfolio exceeds $25,000 or comprises exclusively guaranteed investment certificates. No fees apply for unregistered accounts.