Building an Investment Portfolio

Q.1. How do I get started?

You have to decide what you want to accomplish and what degree of risk you are willing to take. You need to decide how much you want to save, and how fast you want to reach that goal. With that in mind, you need to pick a mix of investments and monitor them on a regular basis.

Q.2. How do I choose investments?

You need to choose a mix of investments from low risk, such as Canada Savings Bonds or GICs, which offer lower levels of return to higher level of risk investments which depend upon your risk tolerance level. These higher risk investments, such as stock options, futures or mutual funds, are more speculative investments that offer higher levels of return but come with higher levels of risk. Whatever you choose to do, be certain that you understand how the investment works, how it has done in the past, and what risks are involved.

Q.3. What about Tax-Free Savings Accounts?

A Tax-Free Savings Account (TFSA) lets you save tax-free for any goal that you have. Canadians aged 18 or older can put up to $5,000 into a TFSA each year.  The money you make on that savings, including capital gains, is tax free. You can withdraw the money at any time but you cannot “top up” your TFSA in the same year that you withdrew some money. You may only deposit $5,000 per year and if you take out $500 and then put it back in, you will be seen as having deposited $5,500 and you may well face penalties. The money you put into the TFSA is not tax deductible.

Q.4. How do RRSPs (Registered Retirement Savings Plan) work?

An RRSP is a savings and investment account that you can open at a bank or other financial institution. The money you save in an RRSP is tax deductible but it is also a form of tax deferral because you will have to pay tax on that money when you withdraw it from the plan. There are limits to the amount of money you can put into an RRSP each year. The Canada Revenue Agency offers information on establishing and utilizing an RRSP.

Q.5. The Safety of RRSPs

The safety of your RRSP depends upon investments that you choose. If you invest in stocks, for example, and the stocks go down in value, so does your RRSP. You have to manage your money carefully and choose your investments wisely.

Q.6. How is my money secured?

To protect against bankruptcy of financial institutions, there is the Canadian Deposit Insurance Corporation (CDIC). CDIC insures client’s money within registered membered financial institutions, up to $100,000 CAD in each account. There are limited to the following requirements:

1. Deposits held in one name

2. Deposits held in multiple names

3. Deposits held in RRSP

4. Deposits held in RRIF

5. Deposits held in TFSA

6. Deposits held in trust

7. Deposits held for paying taxes on mortgaged properties

8. Deposits with a Federal Credit Union

Moreover, Guaranteed Investment Certificates (GICs) less than 5 years and term deposits with less than 5 years, will be covered under CDIC. Stocks, Mutual Funds and Bonds will not be covered and are at the risk of the client.