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Introduction to Investments
Investing can seem daunting for beginners, but it holds the potential to grow your wealth and secure your financial future. Understanding the basics is the first step toward making informed decisions that align with your goals. In this article, we’ll break down essential concepts while exploring different investment options to help you embark on your investment journey with confidence.
Registered vs. non-registered
Before selecting an investment product, it’s important to understand the difference between registered and non-registered investments and how each play in to achieving your goals.
Registered Investments are investments that are registered with the Federal Government and have some form of tax benefit. When investing with CUA, Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are common registered investment vehicles.
In the case of an RRSP, contributions can be claimed against your income each year on your tax return and any unused contribution room rolls over to the next year. You can contribute up to 18% of your previous year's reported income, or the annual limit, whichever is less. The 2024 maximum contribution limit for RRSPs is $31,560. You will only pay tax on your RRSP funds when they are withdrawn. The intention is that you will be in a lower tax bracket once you have retired and will therefore pay less in taxes on the funds.
Alternatively, with a TFSA, all withdrawals made, or income earned, are tax-free. The 2024 maximum contribution limit for TFSAs is $7,000.
Non-registered investments, on the other hand, are not registered with the Federal Government and do not offer any tax benefit. Any income earned on these investments is taxed. They can still be an effective way to save for the future, while earning income on the balance.
Selecting a product
When selecting an investment product, ask yourself “what do I want to use this money for, and when?”. That will help you navigate the varying levels of risk and time-bound commitments associated with each product.
One low-risk option is to open one of CUA’s Savings Account Packages, which include a mySavings standard savings account, myHighInterestSavings (myHISA) a high interest savings account, or a variable account held within a TFSA or RRSP.
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Pros: Liquidity: Immediate access to your funds at any time, with no penalty for withdrawals. Safety: No market risk, with no risk of losing the funds you’ve saved. Insurance: Your deposits are protected through CUDIC Insurance. Simplicity: Easy to understand, no complex investment decisions involved. |
Cons: Lower returns: Lower interest rates on savings account products, limiting growth potential. Interest Rate Fluctuation: Interest rates can fluctuate based on prime rate, which may cause interest rate to decrease, further diminishing returns.
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Another low-risk option is Guaranteed Investment Certificates (GICs), which are also known as Term Deposits. GICs are a low-risk investment option as they guarantee your principal investment, as well as a specified interest rate dependent on the term you select. CUA offers different terms and types of GICs, including 1 Year Redeemable, Short-Term Non-Redeemable, and Long-Term Non-Redeemable GICs/Term Deposits.
CUA’s 1 Year Redeemable Term Deposit gives you a secure investment with the flexibility to access your cash at any time. CUA’s Short-Term GICs are available in terms of less than one year – anything from 30 to 364 days, with Long-Term GICs terms ranging from one to five years. These non-redeemable options will lock your initial investment until the end of your term, with penalties for early withdrawals.
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Pros: Guaranteed Returns: GICs offer fixed returns over a specified period, making them a low-risk investment. Principal Protection: Your initial investment is entirely protected, as there is no market exposure. Insurance: Like savings accounts, GICs are covered by CUDIC Insurance. Liquidity: The 1 Year Redeemable GIC allows you to access your funds when you need them most; but the earlier the withdrawal, the smaller your return. |
Cons: Lack of Liquidity: Non-redeemable GICs lock in your funds for a set term, and early withdrawal may result in penalties and lower interest provided upon redemption. Modest Returns: While returns are better than a standard savings account, they may not provide better returns than can be achieved through market-based investing. Inflationary Risk: If the rate of inflation rises above the GIC’s provided interest real, the value of your funds held could erode over time. |
If you are looking for an alternative option with greater potential returns, consider investing in Mutual Funds with CUA through our NEI Responsible Investment portfolios.
Mutual funds combine the benefits of diversification and professional management while providing a lower cost barrier for the average investor. These funds work by pooling money from multiple investors to purchase a diversified portfolio of stocks and bonds.
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Pros: Higher Growth Potential: Mutual funds pool money to invest in a diversified market-based portfolio, which can provide higher returns over time. Professional Management: The funds your money is invested in are managed by professional fund managers who make investment decisions on your behalf. Diversification: Allows investors to diversify their investment choices across different areas of interest in the market, insulating against potential market decreases. |
Cons: Market Risk: Mutual funds are subject to market fluctuation, meaning there’s potential for loss, especially in the short term. Fees: Expenses like your fund’s Management Expense Ratio (MER) and other costs can reduce your overall returns, depending on how your portfolio is managed. Not Guaranteed: Unlike GICs or Savings Accounts, Mutual Funds do not guarantee your principal or returns, making them higher risk. |
Here is a diagram that summarizes the different types of investment products and the pros and cons of each.
Explore the different deposit rates for each product on our website. You can also find more information for investors of any level on our Money Matters: Investing 101 page. And as always, a member of our team would be happy to assist you with your needs, at any step along your investment journey. Call us at 902.492.6500, email us, or fill out our contact form and someone will get back to you within two business days.
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