Investing is an important way to save for what matters to you, such as buying your first home or retirement. But with a dizzying number of investment options available, how can you choose where to put your hard-earned cash?

“It’s important to take charge of your financial future by gaining the knowledge to create a personalized financial plan that covers investments, retirement planning, tax savings, estate planning and risk management,” says Robert McCullagh, a certified financial planner (CFP) and past chair of Advocis, The Financial Advisors Association of Canada. “With so many choices, the right information can make the difference in your financial success.”

A CFP or a financial adviser can explain the various options. In the meantime, review these common investments to determine which is right for you:

RRSP: A registered retirement savings plan is an investment account designed for saving for retirement. Regulated by the Canadian government, RRSPs have special tax benefits. Annual RRSP contributions can reduce the amount of income tax you pay in that year or future years, and the money you put away can have years of tax-deferred growth potential. You only pay tax on the amounts you withdraw.

 

Mutual fund: These funds let you invest in a group of broad or specific investments picked by a professional manager. When you put your money in a mutual fund along with many other people, it creates a large pool of money that can be invested. The manager decides where to invest the money, then handles it for all of the investors. The manager will provide clients with advice, diversity and a mandate. For example, if you choose to invest in tech stocks or balanced funds, that’s what you will get.

TFSA: Launched in 2009, the tax-free savings account is a flexible general-purpose savings vehicle that allows Canadians to earn tax-free investment returns to help them more easily meet their lifetime savings needs. Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA. Investment income earned in a TFSA is tax free, as are withdrawals

GIC: A guaranteed investment certificate offers a guaranteed rate of return over a fixed amount of time, such as six months, one year, two years or up to 10 years. A GIC may pay a higher interest rate than savings accounts, but not always. You may receive a higher rate of interest for a longer-term contribution, but this will restrict your ability to invest in other things. GIC returns should be adjusted for inflation and be after tax, to reflect real returns. With some GICs, if you need to get your money back sooner, you won’t earn any interest; in fact, you may have to pay a fee or penalty.

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