A practical guide to investing at every stage of life – MoneySense

As your financial needs change from early career to mid-life and from early retirement to retirement itself, the way you approach your investments must also change.

Laying a foundation and driving growth

Even though you’re likely decades away from retirement, starting investing in your 20s or early 30s is one of the best money moves you can make. You’re probably starting your career, so you have a steady source of income. But more importantly, you still have decades to go before you need to access your retirement funds, giving you more leeway to weather the market’s ups and downs.

At this stage you should not only consider setting up your retirement fund, but also putting aside money you will need in the medium term, whether you are saving for a house or car, or planning for a family.

Investment focus: diversify and grow

Investing early, even with modest contributions, gives you a major advantage over those who wait: time.

For your pension fund, you can start with an equity-oriented investment fund or an exchange-traded fund (ETF). Both options can give you access to a broad swath of the stock market without actually having to buy individual stocks. You can start small and set up pre-authorized contributions that can grow your investment over time. (At Tangerine, these are called automatic purchases, which can be set up for all their purchases 13 investment portfolios.)

For investments you expect to use within the next six to 10 years, you may want to consider a more conservative approach, with funds that rely more heavily on predictable income, such as bonds or GICs, which provide regular interest income and return your initial investment if held to maturity. Which provide regular interest income and return your initial investment if held to maturity. These are considered less risky than stocks, although the stock market has historically performed better.

Accounts to consider: TFSAs and RRSPs

As a young adult, you may want investments that offer flexibility and tax-free growth. Check out a TFSA to get started. You can contribute up to the federally mandated annual limit (which accrues each year) and have access to your money if you need to withdraw it at any time. (Keep in mind, though, that if you store something like a GIC in your TFSA, you’ll still have to wait for the expiration date before you can access your money.)

The registered retirement savings plan (RRSP, also called RSP) is the other big one to consider. As the name suggests, it is designed to be used during your retirement. Like the TFSA, there are annual contribution limits. Like the TFSA, there are annual contribution limits. What’s different here is that your contributions are tax deductible, meaning they can reduce the amount you pay in income taxes today. Instead, you pay taxes on the money when you withdraw it, likely in retirement, even though you’ll likely be in a lower tax bracket.

Both TFSAs and RRSPs can hold a variety of savings and investment vehicles, including mutual funds, ETFs, stocks, bonds, or savings accounts. You can set up and manage your portfolio yourself or have it handled by an advisor/portfolio manager for a fee, which you can adjust over time as you see fit.

Balance between career and family

By the time you’re in your 30s or 40s, your income may have increased, but you may also have incurred more debt and may even be caring for elderly relatives. At this point you have competing priorities: saving for retirement, spending money on housing or paying off a mortgage, and supporting your family.

Because of these requirements, you may be a bit more risk-averse with your investments than you were in your 20s. Instead of taking risks on investments with high growth potential, you might prefer investments with moderate risk and stable returns or even with an additional source of income such as bond interest or stock dividends.

Your investment focus: Balance sheet

Your primary goal during this stage of life may be to maintain your portfolio growth while beginning to reduce risk. Instead of relying primarily on high-growth (and higher-risk) investments, consider introducing more moderate-risk options, balancing your stock portfolio with bonds, money market funds and other less volatile investments.

In other words, you may want to shift your mindset from chasing returns to balancing your portfolio.

Accounts and programs to consider: RRSP & FHSA

You may already have one RRSP to which you contribute (perhaps in addition to a TFSA). Consider prioritizing your contributions during this stage of your life so that the account becomes the backbone of your retirement savings. This means that, if you are able to do so, you must contribute the maximum amount allowed per year.

If you’re also on the fence about purchasing a home, look into a first home savings account (FHSA). This registered savings account allows you to contribute up to €8,000 per year up to a maximum lifetime limit of €40,000. Your contributions are tax-deductible and qualifying withdrawals are tax-free, giving you a nice lump sum as a down payment.

What about the homebuyer plan?
The Home buyer plan This allows you to withdraw money from your RRSP, up to a maximum of $60,000, tax-free, if you are a first-time home buyer or have not purchased or owned property in the past four years. This can be a useful strategy if the FHSA is less practical due to timing, eligibility or cash flow limitations, or if you already have money in an RRSP.

Shift to stability and income planning

As you approach your fifties and sixties, retirement is likely on the horizon. You may be thinking more about protecting your investments and trying to figure out how your savings will translate into actual income once you retire. At the same time, you may also be in your prime earning years, so protecting your money from taxes is still important.