Living paycheque to paycheque and relying on retirement money isn’t feasible and not enough to sustain a living due to the unpredictability of the economy. This is where investing and saving comes in, which usually depends on your attitude towards risks. Aggressive risk takers aim for higher returns – go big or go home; moderate risk takers earn average yield; conservatives protect themselves from price volatility and want to make sure that their capital remains secure.
The following are some of the most common investment options for non-risk takers:
GIC, Term Deposit
This offers guaranteed rate of return (fixed, variable or market-based) and good option for capital preservation. You can also use this as the fixed income part of your portfolio. Investments with longer term offer higher yield.
TFSA (Tax Free Savings Account)
Since its introduction in 2009, this type of investment has become very popular among Canadians irrespective of age and/or earning level. Due to flexibility and zero tax penalties, TFSA offers not just stability but liquidity. Additionally, the contribution limit is cumulative and indexed to inflation.
In essence, when you invest in bonds, you’re lending money to the government and/or corporation(s). You can choose between short, medium, or long-term and earn fixed return based on the coupon rate. Again, the longer the term, the higher the return. Its value fluctuates because it can traded or sold, but it can be cashed anytime.
Money Market Fund
Aside from liquidity, one doesn’t need a lot of capital to open an account. This is also ideal for those who don’t want to worry too much about the stock market. Financial institutions invest your hard-earned cash in short-term debt securities to various businesses and government bodies.
These are unique products wherein you enter into a long-term “contract” with financial institutions, including insurance companies, in order to accumulate assets and help manage your income upon retirement. Some of its benefits include tax deferral, lifetime income, payout flexibility and safety.
Cash Value Life Insurance
This is considered a good investment because the returns are safe. Additionally, it provides protection during “extraordinary” events not just for yourself but for your family as well plus you earn something on the side. You pay higher premium but it has the potential to build cash over time.
Low risk investments don’t provide big returns, but they offer stability and security for those who can’t afford to lose money or would just like to avoid as much risk as possible. If you’re new to the investing process, it’s important to prepare a financial plan and know the reasons why you’re doing it. Do your own research and analyze what’s available. Experts say, “Diversify.” Explore different low-risk and/or short-term options and spread your money across the board but limit your portfolio to the number of instruments you can handle and what support your needs and goals. You can then use what you earn to develop a more aggressive plan in the future.
Protect your source of income and have your assets work for you!
Z. Ricafrente | DBPC Blog