If you’re new to investing, one of the first things you may have heard about is the Tax-Free Savings Account (TFSA). Since 2009, the TFSA has given Canadians the opportunity to put cash away, invest it, and see it increase without reporting any of those earnings to the government for taxation.
In 2009, contribution room maxed out at $5,000, but since then that room as increased to a total of $69,500 as of January 1, 2020. That’s a huge amount of money to invest in, so when should you start? And, better yet, how?
What’s your goal?
Before you decide where you’re going to put your money, you need to decide what that money is being put away for. If it’s for retirement, the TFSA might not actually be your best bet, but rather a Registered Retirement Savings Plan (RRSP) could be a good choice. If it’s for your child’s education, you might want to consider looking into a Registered Education Savings Plan (RESP). In an RESP, the government will even give you 20% of your contributions up to $2,500.
If you’re looking to buy a house or create a nest egg, then the TFSA could be a great place to put your money. With that in mind, how should you start?
How to invest
That $69,500 is a lot of money, so what exactly should you do with it? Your goal should always be the driving factor for your investments. So if you’re looking to save up for a big purchase, you might want a bit more of an aggressive investment strategy. If you’re looking to create a solid nest egg, a more conservative approach could be a better bet. Either way, there is one thing you should really look into: automated contributions.
I would recommend setting aside 10% of your pay cheque each month to put toward your investments. That does two things for you. The first is obvious, in that you will be putting more aside toward your goal. The second benefit is that you’ll be reevaluating your investments each and every time you put in those automated contributions. That will keep you on top of your investments, and decrease the likelihood of letting one investment spoil the whole batch.
When is the best time?
Now let’s answer that initial question: when should you invest? Now. Sure, you could wait for when stocks are low, but when is it low enough? Or, if you’re buying low, couldn’t stocks go even lower? The answer is yes, your choices could sink, but if you’re doing the research and have found solid investments with a strong period of growth, then you shouldn’t worry. Those types of investments will rebound eventually.
So whether it’s a bear market or bull market, whether it’s value or growth stocks, and whether you’re young or old, today is always the best time to invest. That money kept in a savings account isn’t doing anything to help reach your goal. So take the steps toward financial freedom, talk to your financial advisor, and start a TFSA today.
