I Have Never Invested Before. Where do I start?

Investing can be fun. It can be very simple, or very complicated. It’s what you make it to be. I’m going to explain some basic option for investing with Canadian Banks.

Let’s assume you are already with one of the “Big 5” Banks of Canada. Either, RBC, TD, Scotiabank, BMO or CIBC. No worries if your bank is not one of the Big 5. You may belong to, Manulife, President’s Choice, CS Alterna or others. These banks or credit unions often offer the same services. The most common banking product is “The Chequing Account”. If you have the Chequing Account, you are not investing. The first baby step of investing is “The Savings Account”.  If you know all about Savings Account, than maybe GIC’s are for you! I also talk about Bonds, and their pros & cons. Last but not least, I explain the TFSA, my personal favourite for basic investing.

1. Savings Account:  All banks offer competative interest rates. The interest rate will be multiplied to your bank balance at the end of the day. Interest rates on Savings Accounts range from .25% to 1.1%. This is known as a “cash” investment. Investing cash about as safe as investing comes. There is virtually no risk of losing any  money here! Worst case scenario, if the bank makes a mistake, you will be covered by the Canada Deposit Insurance. These Savings Accounts don’t offer as many monthly transactions as a chequing account, so try not go go over your monthly transactions. As you know, these banks will nickle & dime you to death with fees. So, the Savings Account is great for young ones, and those starting to become financially savy. The money is literally yours. Withdraw it whenever you want. If you have excess money in your chequing, throw it in a savings account. You can even apply online at your financial institutions website.

2. GIC: (Guaranteed Investment Certificate). You can get a GIC at almost any bank. That was my first investment. The GIC is an investmentwith a fixed term. The terms range from 1 Year, to a maximum of 5 years. GIC rates may range from 1.25% to 2.50%, depending on the term. GIC’s are a step up from the savings account. The downside is, GIC’s are not as liquid as the cash in your savings account. If you redeem your GIC before the term is over, you will be penalized. We’re looking at around $50. The GIC is not a typical investment. It is a contract, with a fixed interest rate with the “Guarantee” that you will receive your principal and some interest when the term in over. So the value of your GIC is not fluctuating. Also, GICs have a minimum deposit, usually minimum of $500. GIC’s are awesome for giving you that peace of mind. Knowing you’re only making money.

3. Bonds: There are 2 basic types of bonds. Government Bonds & Corporate Bonds. Government bonds tend to be a little less risky. We purchase bonds to help the government and corporations develop and pay off debt, and in return they will give interest on your principal. The terms on bonds can range from 6 months to 30 years. Again, like the GIC’s interest rates depend on the length of the term. Interest Rates usually range fro 0.5% to 4%. Bonds are known as low risk investments. Interest rates are potentially better because you can take advantage of the longer terms…30 years!

4. TFSA (Tax Free Savings Account): If you’re 18 or older, and have a SIN#, than this unique savings account might be the right one for you.It’s very underrated in my opinion. The TFSA, if you havn’t heard, is relativly new, introducted in 2009. The TFSA’s claim to fame is, there is no taxable income on anything earned, contributed or withdrawn from the account. The TFSA is used to hold your investments, within the account for you. You may invest in more than just Cash. A brief list of available investments: Mutual Funds, GICs, Bonds, Stocks, ETFs, Options, Cash & any other security listed on a stock exchange. What’s the catch? You have TFSA Contribution Room. Each year, that room increases by $5,500 (as of 2013, and may change indexed to inflation) When you contribute, you decrease your contribution room, and when you withdraw, you increase your contribution room. Your Contribution Limit will appear on your Notice of Assesment, from CRA. View CRA’s TFSA page here

So, hopfefully I’ve given you guys some insight on which basic investment is for you.

By: Lawrence Radburn

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