1 – Save early and contribute regularly
It’s important to start saving early and regularly invest in your RRSP and/or TFSA, especially if you don’t have a retirement fund or employer pension fund.
Did you know that one in three workers in Canada has a pension fund? Whether you have one or not, Old Age Security pension, the Canada Pension Plan, and the Québec Pension Plan are not enough to guarantee your financial security in retirement.
If your employer provides a group RRSP, you should opt for payroll deductions. It’s a good approach for achieving your savings goals because you benefit from an immediate tax reduction and make sure that you save and contribute to your RRSP on a constant basis.
If your employer doesn’t provide a group RRSP, then your best savings strategy is systematic investing through automatic deposits because it delivers long-term results. What’s more, by contributing to your RRSP and/or TFSA, you reassess the relevance on nonessential expenses. Along with benefiting from a potential tax refund, you stop contributing to inflation and begin to take pride in protecting what you care about!
2 – Learn about yourself and stay disciplined
First and foremost, you need to determine your investor profile. Among other benefits, it gives you a better understanding of your risk tolerance, in other words, your degree of comfort with stock-market downturns and rebounds. That’s why it’s important to know your limits and investment horizon in light of your age, family situation, and savings goals. Diversifying your portfolio also helps you cope with periods of volatility.
Make sure your investments are in line with your aspirations and be sure to stay the course – consistency pays off. In fact, research shows that systematic investing is by far the best investment approach, as it yields results over the long term.
3 – Plan well for your retirement and plan to live long
You may live longer than you think. As a result of rising life expectancy, many people will spend more time in retirement than on the job market. This is known as longevity risk, also referred to as “outliving your savings,” that is, using up all your savings before death.
To prevent this from happening, start saving early and regularly. If need be, delay your retirement by two or three years or continue to work, either full-time or part-time. If having a fixed and guaranteed retirement income is key for you, consider purchasing a life annuity, whereby an insurance company pays you an amount every month until your death. As a result, you won’t have to manage longevity risk. Lastly, consider adding segregated funds with equity-market exposure to your portfolio. Medium-term equity markets yield better returns than fixed-income securities. Also, segregated funds can protect your capital investment, which is a comforting feature.
4 – Beware of the “flavour of the month”
Have relatives or friends told you they’ve made huge returns by investing in a trendy stock or making speculative investments? It’s true that market volatility makes some investors lucky – this has the effect of attracting other investors… but often a bit too late.
If you’re wondering whether you, too, should invest in a market, sector or asset class that has performed well lately, ask yourself the following questions: Is this just the “flavour of the month”? Has the train already left the station? Is this in line with my investor profile? Beware of your emotions. They’re not always a reliable guide when it comes to investing. You need to do your homework! Keep in mind that risk can grow significantly when you invest in an asset you don’t fully understand.
Returns can be impressive, but it’s rare for a given asset class, fund, or sector to replicate the same return levels year after year over a long span. Once again, portfolio diversification remains a surer value!
5 – Be wary of preconceived notions
Many people think that to invest in stocks you have to be rich. That’s not true. There are financial instruments that allow you to add stocks to your investment portfolio. Be aware, however, of related fees, which may vary depending on the nature of the product you choose and the kinds of coverage that are provided.
Others believe that you need good contacts or insider tips to achieve good returns. That’s not true, either. Very stringent standards, controls, and sanctions are in place to prevent people from gaining access to inside information. Even financial analysts and fund managers, who are very knowledgeable, have access to various kinds of information at the same time you do.
It’s important to understand that the stock market fluctuates in accordance with multiple variables, including innovation and productivity, but also in response to geopolitical conflict, pandemics, and other kinds of events. So it’s unpredictable. Yet, despite its many periods of volatility, the stock market has, historically, yielded positive returns over the long term. Consequently, the stock market is a safe bet in the medium to long term, particularly when it comes to retirement planning.
In closing
The important thing is to determine, with help from a financial security advisor, what strategies are best for you in the year ahead. Your advisor can help you prepare for retirement or any other project and calculate the amount you need to save every year. Your advisor can also provide guidance in line with your reality and needs. You don’t have an advisor? In that case, you can find an advisor near you right now.
As a final word, keep in mind that a good investment is one that doesn’t keep you up at night.
1 Statistics Canada – Census in Brief