New to Investing? How to Build Your TFSA and RRSP All at Once

New investors may want to consider this investment strategy when they’re just starting out, and buy something safe again and again to keep shares moving upwards.

| More on:
Piggy bank next to a financial report

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

New investors likely come to the Motley Fool looking for a place to start. And that’s certainly the right move! There is so much information here on stocks to consider on the TSX today. But it can still seem rather overwhelming.

Besides, once you have those stocks chosen, how can you afford them if you’re just starting to invest today? You may only have a couple hundred bucks, and maybe you’re worried about missing today’s opportunities.

Instead of hoarding your cash, the right time to get into the market is always right now. So, let’s look at a strategy to help you get started with you Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP).

Saving strategy

If you’re just starting out, you may be short of cash. It’s recommended Canadians put perhaps 10-20% of their income towards investing each month. But even if you get the high end, that may only be a couple of hundred bucks, if even just $100 per month.

The problem that Motley Fool investors may have with this on the TSX today is that they may want to make one large purchase. They want to get in on the market when it’s down and time it right. But investors shouldn’t worry about timing the market; what matters is time in the market. That means getting started and staying consistent.

This is where the strategy of dollar-cost averaging can be useful. It’s where you buy an investment you’re confident in each month, no matter what. If you do this over decades, on average, you’ll see your shares (dollar) increase substantially. This is far better than waiting for a dip, trying to time it, and missing out on a potential strong buying opportunity. Instead, stay consistent, and keep it flowing.

Use the TFSA and RRSP together

Let’s say you want the RRSP for a retirement goal in 20 years and the TFSA for some short-term goals like education or home maintenance. These short-term goals can be achieved, and then the cash you put into your TFSA can be used towards your RRSP as well.

If you use the dollar-cost-averaging strategy each month, you could put it towards both your TFSA and RRSP. At tax time, figure out how much of your TFSA you’re going to need that year. If you don’t need anything, you may want to consider putting some towards your RRSP. Why? Invest enough, and you could bring down your employment tax to a new tax bracket, saving you thousands.

You won’t just have savings; you’ll have investments that have grown thanks to the dollar-cost-averaging strategy coupled with using your TFSA and RRSP together.

Where to start

There are a lot of strong recommendations out there for stocks to buy on the TSX today. But if I was going to consider one as a new investor, it’s likely going to be an exchange-traded fund (ETF) with global exposure.

In that case, if you’re already looking at Canadian companies, it could be a good idea to invest in an ETF that gives you exposure to everything else. For that I would consider the Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC).

This ETF focuses on tracking the performance of the broad global equity index, besides Canada. It mainly invests in large, mid-, and small-capitalization stocks of companies in both developed and emerging markets. As markets have fallen, shares are down 19%. But in the last five years, shares are still up 22%, and it offers a quarterly dividend of 1.32% as of writing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Target. Stand out from the crowd
Energy Stocks

3 Oversold TSX Stocks I’d Buy in Bulk

Recession fears impact oil prices, although three oversold stocks should remain resilient and generate substantial free funds flow throughout 2022.

Read more »

Stocks for Beginners

New Investors: 3 Top Dividend Stocks to Start a Simple Portfolio

These quality dividend stocks are worthy for new investors to consider for a simple passive-income portfolio.

Read more »

Dollar symbol and Canadian flag on keyboard
Tech Stocks

3 Top Canadian Growth Stocks to Buy in July

Here are three growth stocks you might want to add to your buy list in July.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

CIBC Stock Could Be a Top TFSA Buy for a Rocky 2nd Half of 2022

CIBC (TSX:CM)(NYSE:CM) stock is a great dividend top pick to stash in a TFSA after the first-half market correction.

Read more »

exchange-traded funds
Dividend Stocks

2 Dividend ETFs With Significant Exposure to the TSX’s Top 2 Sectors

Two dividend ETFs offer ideal diversification because of their exposure to the TSX’s two strongest sectors.

Read more »

sale discount best price

RRSP Investors: Top Stock Pick on Sale After the Stock Market Correction

Quebecor (TSX:QBR.B) looks like a terrific dividend stock for RRSP investors to buy, as recession risks rise amid a market…

Read more »

edit Colleagues chat over ketchup chips

The Alternative Way to Look at Any Recession

Market down? Instead of losses, look for potential gains. This alternative way to look at any recession exposes a market…

Read more »

Arrow descending on a graph
Energy Stocks

Why Did Oil Stocks Crash so Suddenly?

Oil stocks like Cenovus Energy (TSX:CVE)(NYSE:CVE) crashed dramatically last week. Here's why.

Read more »