Monday, December 11, 2017

Calculated Thought: Students should think about investing

January 18, 2017 by Sean Annable, contributing writer

Investing is a daunting topic to learn about, filled with technical language, buzzwords, and acronyms (so many acronyms).

I’d like to talk about two of them: RRSPs and TFSAs. These are registered accounts in which your investments held inside grow tax-free.

Plunk some money into an Registered Retirement Savings Plan (RRSP) (there are annual maximums), and contributions are tax deductible. Think of the RRSP as a tax-deferral account—you get a break now, at your current tax rate, and instead pay tax at the rate when you pull out the cash when you’re retired.

Calculated Thought is a column dealing with student finances that is featured in every issue of Nexus.

The idea is to use this contribution room in your highest earning years, when you will most likely be earning much more than in retirement, to fully benefit from the tax deferral.

For students, extra money to invest may not be a reality, but when the time comes, the Tax-Free Savings Account (TFSA) may be the better option for investing.

“Investing” is the key word. Don’t let the poorly named title deceive you: this is not a savings account. There isn’t a benefit—other than not spending it—to dumping money into this account, and letting inflation eat away at its real value.

You can contribute much less ($5,500, currently) to this account annually, with contribution room accumulated from the year you turn 18—up to $52,000, if that happened as of 2009. While you get no tax deduction for contributions, neither are you taxed upon withdrawal, and, unlike RRSPs, there are no sticky rules about how and when you can make withdrawals.

I encourage everyone to do their own research on what investments are right for them. It takes planning and research; you should have a goal with a timeline, understand the risks of each class of investments, and know your risk tolerance.

Next time, I’ll share the takeaways from my own research, touch on risk, and lay out options for getting started. With home prices running out of control, and wage growth as stagnant as a murky pond, investing could hold the key to a more comfortable slide into old age.

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