Getting started on saving and investing: A brief how-to guide (2024)

Thu Feb 25 2021 17:46:00 GMT+0000

As you set out on your journey to begin saving and investing to meet your financial goals, you’ll need to determine which products and/or investment strategies are right for you and your financial situation.

To determine the most appropriate savings and investing options, begin by asking yourself these three key questions:

  • What are you saving or investing for?
  • What is your time horizon to reach your goal?
  • What is your risk tolerance?

Did you know?

An RRSP and TFSA are investment vehicles, while GICs and mutual funds are investment products you hold within these vehicles.

The following is a brief, high-level guide to get you started on choosing which investment options align with your goals and timelines:

Getting started on saving and investing: A brief how-to guide (1)

Your risk tolerance – a key factor in determining how you’ll invest your money

Your risk tolerance, or risk appetite, is the amount of risk you’re willing to accept when investing and your financial ability to handle loss. Having a clear understanding of your risk tolerance will help you determine which investments are appropriate and which to avoid.

Many investments offer the potential for a higher rate of return but also involve some level of risk. More risk may be acceptable if your financial goal is longer term, which will allow for more time to recover any financial losses.

Your Scotiabank advisor can help assess your risk tolerance and build an investment plan tailored to address your unique needs and comfort level.

Basics of saving and investing offerings – frequently asked questions

High-Interest Savings Accounts (HISAs) vs, Guaranteed Investment Certificates (GICs)

What are they?

HISAs usually earn more than a typical savings account, helping you increase your savings over time. How much interest you earn depends on the financial institution, but typically, the higher your balance or the longer you keep your money in the account, the more interest you can earn.

GICs work similarly to savings accounts, as you can earn interest on your funds without the risk of losing your original principal investment. However, unlike many savings accounts, GICs are not meant to be touched for a set amount of time. GIC terms range from 30 days to 10 years, so you can choose the option that works best for your investment goals. GICs usually require a minimum deposit between $500 and $1,000.

How much do I have to invest?

If you have a large sum of money to invest, a GIC will usually help you earn a better interest rate than a savings account. However, it’s important to keep in mind that there are penalties for early withdrawal, so you have to be certain that the money invested in a GIC won’t be needed for the entire term of the certificate.

If you want to make ongoing contributions to your investment, then a HISA might be the more appropriate option. You can continuously add to your savings as long you hold the account.


RRSP and TFSA: What are the main benefits and key differences?

Essentially, both the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) let you shelter your investment returns from taxes.

An RRSPis an investment vehicle that helps you grow your retirement savings. One of the main benefits of an RRSP is that you defer paying taxes on the money you contribute and any investment income earned, until years later when you withdraw your money in retirement.

A TFSAis a relatively new investment vehicle that was introduced in 2009. It can be used to save towards retirement, but also many other goals because, unlike an RRSP, you’re free to withdraw funds at any time without penalties. The main benefit of a TFSA is that they are completely tax free. Since you’ve already been taxed on the money you put into your TFSA, any income you earn from the investments within your TFSA is tax free, even when withdrawn from the account.

What type of investments can I hold in an RRSP or TFSA?

Generally, the same types of investments are permitted in both. There are a wide variety of options to choose from, including cash, guaranteed investment certificates (GICs), exchange-traded funds (ETFs), mutual funds, stocks and bonds.

Mutual funds

What is a mutual fund?

A mutual fund is a professionally managed investment that pools money from different investors to invest in a variety of stocks, bonds, short-term money market instruments or other securities.

Mutual fund investors get the benefit of diversification and having a professional manager reviewing their investment on an ongoing basis. Their investment knowledge can be an invaluable resource, especially for many investors, who simply don’t have the time or investment expertise to micro-manage their investments.

Getting started on saving and investing: A brief how-to guide (2)

The various savings and investment choices mentioned have their own unique benefits, and to maximize their effectiveness, your personal circumstances, time horizon and risk tolerance should be considered. A Scotiabank advisor can recommend options and help you choose an investment strategy that works best for you.

Ready to get your finances on track for your future? Come in and speak to a Scotia advisor today

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This article originally appeared in Advice Matters.

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Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.

I am an experienced financial advisor with in-depth knowledge of savings and investment strategies. My expertise extends to various financial products and vehicles, allowing me to provide valuable insights into optimizing your investment approach. Now, let's delve into the concepts mentioned in the article:

  1. Risk Tolerance:

    • Risk tolerance is a crucial factor in investment decisions. It refers to the amount of risk an individual is willing to accept and their financial ability to handle potential losses.
    • Understanding your risk tolerance helps determine suitable investments, balancing potential returns with acceptable levels of risk.
  2. High-Interest Savings Accounts (HISAs) and Guaranteed Investment Certificates (GICs):

    • HISAs typically offer higher interest rates than regular savings accounts, facilitating increased savings over time.
    • GICs function similarly to savings accounts but involve locking in funds for a specific period (terms ranging from 30 days to 10 years), providing a stable interest rate.
    • GICs may be more beneficial for large sums of money, but early withdrawal can incur penalties. HISAs allow ongoing contributions.
  3. RRSP (Registered Retirement Savings Plan) vs. TFSA (Tax-Free Savings Account):

    • Both RRSP and TFSA allow the sheltering of investment returns from taxes.
    • RRSP is designed for growing retirement savings, deferring taxes on contributions and investment income until withdrawal in retirement.
    • TFSA is versatile, allowing withdrawals at any time without penalties. All income earned within a TFSA is tax-free.
  4. Investments within RRSP or TFSA:

    • Both RRSP and TFSA support a range of investments, such as cash, GICs, ETFs, mutual funds, stocks, and bonds.
    • Investors have flexibility in choosing investments based on personal preferences and financial goals.
  5. Mutual Funds:

    • A mutual fund is a professionally managed investment pooling money from different investors to invest in diverse securities like stocks, bonds, and money market instruments.
    • Mutual funds provide diversification and benefit from professional management, making them suitable for investors lacking time or expertise for hands-on management.

It's important to note that the information provided in the article is for informational purposes only and should not be considered financial, tax, or investment advice. For personalized advice tailored to individual circumstances, consulting a professional advisor, such as a Scotiabank advisor, is recommended.

Getting started on saving and investing: A brief how-to guide (2024)
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