With the start of a fresh new year come resolutions of saving money to protect your future. However, many people don’t know how to invest or where to put their money to ensure a secure financial future.
Investing in a dividend fund within your RRSPs is one of the many ways to generate a tax-efficient income. According to Lieh Wang, vice-president of Canadian Equities for CIBC Global Asset Management, a dividend fund is something that gives you both income and growth potential due to its focus on dividend yielding stocks.
“A dividend fund is a fund that invests in a couple things — one they would invest in are common stocks but usually pay a dividend,” says Wang, who co-manages the Imperial Canadian Dividend Pool. “The fund typically would also invest in other asset classes that include bonds, for example, and income trusts, and sometimes even in preferred shares. So, typically, the objective of a dividend fund is to give investors an opportunity for stability and growth.”
So what is the appeal of dividends for young people? It’s simple. They offer a consistent return on a low-risk investment.
Of course, a dividend fund is appropriate for every demographic, but especially valuable to young people, says Wang, because they would have a longer time growing their investment horizon.
“When we look at the historical track record of stocks, for example, it surprises a lot of people to find out that dividends and the reinvestment of dividends have actually accounted for the majority of stock performance,” he continues.
“In Canada, since 1956, dividends and the reinvestment of dividends have accounted for over 60 per cent of the total return of a stock,” says Wang. “So that’s why it would be attractive for young people — so by investing in dividend funds you are taking advantage of this opportunity of investing for both stability and in growth.”
For more information, visit your local CIBC branch or call 1-800-465-3863.