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The best RRSP investments 2020 – MoneySense

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A Registered Retirement Savings Plan (RRSP) is an investment plan that is registered with the Canadian federal government. RRSPs are often described as being “tax-advantaged.” That means you don’t pay income tax on the amount you are contributing to an RRSP, in the year you earn that contribution. However, you will have to pay income tax when you withdraw money during your retirement. The advantage is built on the assumption that your income is higher now than it will be during retirement. If you plan things right, you will be in a lower tax bracket in retirement, meaning that you pay less tax on your withdrawals than you saved initially by stashing your money inside an RRSP.

You can open an RRSP and contribute income up until the age of 71, at which point it has to become a Registered Retirement Income Fund (RRIF) and you begin to withdraw the money as taxable income. 


Compare the Best RRSP Savings Accounts in Canada*


The best RRSP savings accounts and investments accounts in Canada for 2020

Rates current as of February 21, 2020

Best for risk-averse investors – MAXA Financial RRSP Savings

Offering 2.40% interest, paid out monthly, this RRSP savings account out-earns inflation (which was 2.01% in 2019), and all deposits are protected by the Deposit Guarantee Corporation of Manitoba (DGCM), with no limit. There’s no minimum balance and no monthly maintenance fee.

Best for risk-averse investors – Peoples Trust 1-year Registered GIC

GICs have a reputation for being boring, but if keeping your principal safe is a key concern, this RRSP-compatible 1-year GIC offers a 2.75% return, which is higher than most savings accounts, and up to $100,000 per account is protected by the Canada Deposit Insurance Corporation (CDIC)

Best for investors who want simplicity – Questwealth Portfolios*

Whether you’re just starting out, or want a “set it and forget it” component to complement your other investments, a robo-advisor like Questwealth Portfolios* offers an all-in-one solution that is tailored to your risk tolerance and objectives through an online questionnaire you’re given when you sign up. Questwealth’s fees are among the lowest in the business, ranging from 0.2% to 0.25%, depending on the size of your portfolio. Bonus: new clients have fees waived for the first year on their first $10,000 invested. Note that because the portfolios are built from exchange-traded funds (ETFs), your principal is not protected. The minimum account size is $1,000.

Best for investors who want simplicity Wealthsimple Invest*

Like Questwealth Portfolios, Wealthsimple is a robo-advisor that matches you to a low-cost portfolio of ETFs for a one-stop RRSP experience. Wealthsimple’s fees are higher, ranging from 0.4% to 0.5%, depending on how much you have invested, but you do also get fees on the first $10,000 waived for the first year. There’s no minimum account size. 

Best for DIY investors – Questrade*

Experienced, hands-on RRSP investors enjoy using an online brokerage like Questrade for its low fees and the ability to handle trades on your laptop or even smartphone. Questrade boasts the lowest fees, with no commission charged on ETF purchases, and stock purchase and trading commission at $4.95 to $9.95 per each transaction. Questrade* placed first in MoneySense’s most recent Best Online Brokers ranking.

What is a Registered Retirement Savings Account (RRSP)?

An RRSP is retirement savings plan that you open at a bank or other financial institution. You can open an account in-person, if that service is offered by your chosen institution, or from the comfort of your laptop, if you choose to open a plan online. RRSPs are registered by the federal government of Canada, which specifies the maximum amount each Canadian can contribute up to it up each year. There are two big benefits to saving or investing inside an RRSP: One, your money is allowed to grow tax-free until you need to withdraw it; and, two, get an immediate break on the income tax you would otherwise pay on the amount you contribute each year, up to your annual limit.

What are the types of RRSPs available?

You can use an RRSP to save money for your own retirement, as well as your spouse’s. If your employer offers a group RRSP and will match a portion of your contributions, sign up for it: your employer’s contribution alone gives you a no-risk return on your investment that would be tough to match anywhere.

Individual RRSP 

The government sets a contribution limit for RRSPs each year. You can contribute a total of 18% of your income or a maximum of $27,830 (the limit for 2020), whichever is less. If you pay into an employer-sponsored pension plan, then those contributions are also deducted from your contribution limit. If you contribute less than your contribution limit for a given year, then you are also able to carry over any unused contribution to future years. 

Spousal RRSP

In addition to contributing to an RRSP for yourself, you can also contribute to your spouse’s RRSP. Contributions to a spousal RRSP still count toward your own contribution limit, but this can be a smart way to split your income for tax purposes in retirement. Any taxable earnings from your RRSPs will be split between the two spouses in retirement, which can help lower your tax bracket.

Group RRSPs (GRRSPs)

Group Registered Retirement Savings Plans (GRRSPs) are essentially RRSPs that are set up by employers. These can come with benefits such as contribution matching (sometimes referred to as a “top up”) and automatic payroll deductions, so your contributions are handled for you on an ongoing basis. If a GRRSP with contribution matching is available through your employer, this should be the first place you invest for your retirement. Note that amounts you contribute to a GRRSP count against your annual RRSP limit.

What kinds of investments can I hold inside my RRSP?

There’s a wide variety of investments you can hold inside an RRSP—and you don’t have to stick to just one, or even two. Depending on your investment horizon (the amount of time until you need to draw money from your RRSP in retirement), risk tolerance and other personal factors, using a mix of low-risk savings accounts and GICs for safety, along with perhaps some exchange-traded funds and even individual stocks for growth, can offer diversification.

Note that not every kind of investment can be held in an RRSP. Investing in businesses in which you hold an interest of 10% or higher, precious metals that are not gold or silver, commodity futures, private holding companies or private foreign corporations, your own debt, and personal property, are all non-qualified investments.

Savings accounts

The most straightforward way to save your money is to put it in a savings account. While this will yield a lower interest than other forms of investment, it is also a no-risk decision. What’s more, you can always decide to take the accessible cash you have in your RRSP and use it to purchase other investments within the same RRSP accounts down the road. So, if you are still trying to sort out which investments are best for you, you can walk into any major bank or financial institution tomorrow and start deferring your taxable income right away.

Guaranteed Investment Certificates (GICs)

Guaranteed Investment Certificates (GICs) are another very low-risk investment that you can set up within an RRSP at any bank or financial institution. GICs offer a guaranteed rate of investment on predetermined terms. You could buy a 1-year GIC that would pay, let’s say, a 1.0% rate, or a 5-year GIC that would pay 2.0%. One main drawback is that interest earned on GICs is usually subject to tax rates that can be as high as 50%. When GICs are held within an RRSP, however, they are sheltered from those taxes.

Mutual funds

Professionally managed mutual funds are a popular choice offered at major banks and financial institutions for RRSP investments. Mutual funds are made from a variety of investments that are bundled together in one fund. This makes it easier for your investments to be diversified and, therefore, offer less risk than when compared with investing directly in the stock market. Professionally managed mutual funds do, however, incur management fees that can be as high as 2.0% per year.

Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs) are relatively new to the investment scene in Canada, but are an excellent choice for people interested in exploring a self-directed RRSP that gives you more control over your investments. ETFs are collections of stocks and bonds that are designed to track the stock market over time. So, as the market goes up over time, so does your investment. When the market dips, however, you will also lose money. ETFs are a good option for those who can tolerate some risk and are not considering withdrawing money from their RRSPs in the short term. Robo-advisors that calibrate your investments with a computer algorithm rather than a professional advisor are great options for saving on management fees with ETFs. Consider firms such as Questwealth*, BMO’s Smartfolio and Wealthsimple, among others.

Stocks and bonds

Self-directed investors who want to buy individual stocks and bonds can certainly hold those investments in an RRSP as well. Stocks, in particular, tend to be more volatile investments and should be geared toward people with a higher tolerance for risk who are comfortable taking a long view of maximizing their investment. You can either work with a conventional broker or use an online broker to manage your investments on your own.

What are some ways to leverage my RRSP savings without paying a penalty?

In addition to giving you a tax-deferred place to save towards your retirement goals without, an RRSP is a tool you can tap into to help with two major life expenses: buying your first home; and pursing further education. In both cases you can withdraw a portion of your RRSP funds without having to pay tax or penalties, as long as you adhere to a specified repayment plan.

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) is a program that allows first-time home buyers to leverage their tax-deductible RRSP savings for to use as a downpayment on their home. It essentially allows home buyers to borrow up to $35,000 per person from their RRSPs and then repay that money back into their RRSPs over a 15-year period. Note that any failure to meet the scheduled repayments in any given year will result in having the unpaid amount taxed at your top rate

Lifelong Learning Plan (LLP)

The Lifelong Learning Plan (LLP) is a similar program that allows RRSP holders to withdraw money for the purpose of pursuing additional education. You can withdraw up to $10,000 per year and up to a total of $20,000 and are given 10 years to repay the full amount, in the same way HBP withdrawals are repaid. The LLP can be used to pay for your own education or your spouse’s, but not your children’s. Once it is repaid in full, you are free to use the program again.

Should I invest in a TFSA instead?

Canadians can also choose to invest their savings in Tax-Free Savings Accounts (TFSAs). There are circumstances that would make a TFSA (which does not defer tax on contributions and instead offers tax-free growth and withdrawals at any time) a smarter choice. If you think you might need the money before your retirement, a TFSA will allow you to withdraw as much as you want, whenever you want. The flipside of that equation, however, is that easier access to your money might derail your retirement planning in the long run.

Also, remember that the tax advantage of an RRSP* relies on the assumption that you will be in a lower tax bracket when withdrawing the money in retirement than when you are contributing to it. So, if you earn less than $50,000, it makes more sense from a tax perspective to invest the money in a TFSA from a tax perspective. If you earn more than $50,000, and are investing solely in your retirement (and perhaps saving for a home or planning more education), an RRSP makes more sense.

Or, if you have enough money to spread around, consider investing in both!


Compare the Best RRSP Savings Accounts in Canada*


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Peel Hunt Reports Record First-Half Investment Banking Revenue – BNN

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(Bloomberg) — Peel Hunt’s investment banking unit reported record results in the six months to Sept. 28 as the exit from lockdown boosted market confidence and the broker grew its client roster.

Revenue at the division rose 43% to 32.7 million pounds ($44 million), with investment banking fees up almost half, the company said in a statement Wednesday. That’s its strongest half-year on record.

“We continue to grow our number of retained investment banking clients and have a healthy deal pipeline with a strong balance of transactions,” Chief Executive Officer Steven Fine said in the statement. “We’re well positioned to execute our growth plans, which include opening an European office.”

The firm’s research operations grew by 3.5% and revenue at its execution and trading operations more than halved to 24 million pounds, reflecting an expected normalization from the heightened trading volumes seen at the onset of the pandemic.

The firm returned to London’s Alternative Investment Market at the end of September, more than two decades after it was first floated. It currently has 162 corporate clients, with an average market value of around 775 million pounds.

©2021 Bloomberg L.P.

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Here’s why you shouldn’t shy away from investing, even if you only have a small amount of money – CNBC

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

Robert G. Allen, author of several best-selling personal finance books once asked, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” 

Using a savings account and an emergency fund for short-term expenses is important, but investing for retirement and the future is arguably just as crucial. While it may feel pointless to start investing if you don’t have much money, it can still be incredibly worthwhile. Think of it this way: few, if any, start investing with a large sum of money. For many, growing your wealth happens over years and years and is a slow and steady process.

By starting slow, even with a small amount of cash, you can begin to establish the habit of investing regularly, which will hopefully lead to a large nest egg in the future.

Select details why you should start investing today, even if you don’t have a large amount of money to start with.

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Why you should start investing today

Investing can be an intimidating word and concept for many reasons. There are a large amount of terms, tax implications, planning and investments to understand — along with knowing there will be market fluctuations making your net worth go up and down. But by understanding the mere basics, you can begin to grow your wealth quickly.

Corbin Blackwell CFP, senior financial planner at wealth management app Betterment, told Select that, “Investing is one of the best ways to grow your long-term wealth and reach major goals for things like retirement, buying a home and college funds.”

He also said that beginning the investing journey is often the most difficult part, as growth will be limited at first. He added that, “Tools available today, like digital investment advisors, make it easier than ever to get started.”

And by getting started today, you have the best asset that any investor can have on their side: time.

By letting your money sit in the market longer, you allow for compound interest to take over — which is when your interest and gains stack on top of one another. Blackwell gives an excellent example of the power of compound interest:

“Let’s say you invested just $100 today and saw a 5% annual return – thanks to the power of compound interest, if you don’t touch your investment, in 30 years you’d have $430.”

That’s an ok return, but imagine if you invested $100 monthly for 30 years into a common index fund. An index fund is a fund that has a group of companies within it, and tracks the performance of the entire group. These groups can range in focus including the size of each company, the respective industries, location of the companies, type of investment and more. One of the most popular indices, the S&P 500, consists of the 500 largest companies in the United States, making it a relatively safe investment because of its exposure to hundreds of companies and dozens of industries.

Many consider this a ‘boring investment,’ but the results the index has produced are nothing to balk at.

The average yearly return of the S&P 500 over the last 30 years is 10.7%, but even at a conservative return of 8%, you would have over $146,000 if you invest $100 a month for 30 years. The impressive part is that your total contributions would be $36,000, which means your money would have quadrupled in value in 30 years (note that past performance does not guarantee future success).

In short, the more money and more time you have in the market, the more likely you are to grow your investment funds.

How to begin investing

If growing your net worth is your goal, you can get started in just a few minutes. Here are a few things to consider:

Build a budget that works for you

Starting to invest with a small amount of money isn’t an issue. However, it’s important to know how much you can afford to invest, as you don’t want to harm your personal finances in the process. Blackwell urged, “as long as you aren’t using money [to invest] that you need to cover day to day expenses such as food, rent and high interest debt payments, I recommend you start investing.”

A budget gives you a way to see where your money is going each month, where you can possibly cut back and how much you can invest each month. You can set up a budget for yourself using a budgeting app, a spreadsheet or even a simple pen and paper. I use Personal Capital to manage my budget because I’m able to track my expenses and monitor the performance of my investments in one convenient app.

Regardless of which budgeting method works best for you, it’s important to have an established budget to understand how much you can invest each month without cutting into the money allocated towards your monthly essentials.

Select an investing “bucket” and investments

There are many different buckets you can fill with money, such as a Roth IRA, HSA, 529 or taxable brokerage account. Each of these accounts serve a different purpose and have different tax implications, so be sure to select one that makes sense for you. For example, a Roth IRA is great if you plan on being in a higher tax bracket when you retire — you’ll contribute after-tax income but all gains are tax-free after 59 and a half years old.

Once you select the type of account you want to invest within, you then must decide what type of investment to put your money into. This is the puzzling part for many, as there are an abundance of options, from ETFs to viral meme stocks to index funds and many more in-between.

For long term investors, index funds are a great solution as they have low fees, are low maintenance, provide wide exposure and many provide stable returns. In fact, John Bogle, the founder of Vanguard, summarizes the effectiveness of index funds in one analogy: “Don’t look for the needle in the haystack. Just buy the haystack.”

Regardless of which investment you choose, it’s important to evaluate your risk-tolerance and understand what you’re investing in. Be sure to do your own research, and potentially connect with an accredited financial advisor to discuss the best options.

Automate your investing

Once you determine how much you can and want to invest each month, it’s important to turn on auto-investing.

This is where money is taken out of your checking account each month and automatically deposited into your choice of investments. Choosing this option is important because it takes the leg work away from needing to invest each month. Additionally, studies show that we are built for ‘present bias‘ — which is the idea that the farther away something is, the less important it is. Essentially, it’s much easier to spend now, rather than save for later. Automating transfers from your checking account or paycheck into an investment account will help ensure you don’t spend money that you were planning on investing.

By automating your investments, you will be passively growing your nest egg and getting yourself closer to reaching your financial goals.

You may also want to consider a robo-advisor like Betterment or Wealthfront. Robo-advisors work by gathering information from you on your financial situation and investing goals to suggest investments that fit your needs and risk tolerance. After supplying this information, the robo-advisor will build you a portfolio based on your answers through computer algorithms and advanced software, with little to no work on your end. Plus, it will rebalance your investments over time based on your goals and changes in the market.

Best brokerages to get started

To begin investing, you’ll need to select a brokerage account provider. These brokerages serve as the intermediary between you and the seller of the stock or security you want to purchase.

When deciding on the best brokerage for you, be sure to consider these factors:

  • Fees: These can range from minimum deposits, stock trade fees, mutual fund trade fees and more. Be sure to select a no- or low-fee brokerage.
  • Ease of use: Each brokerage has a different website and mobile app. While this is much more subjective, it’s advantageous to use a brokerage with a web interface and experience you understand and enjoy.
  • Promotions: From time to time, brokerages will offer bonuses to new users. For example, I recently signed up for a Fidelity brokerage account and earned a $100 bonus after depositing $50.

Below are a few of our favorite online brokerages:

Fidelity

Information about Fidelity accounts has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

  • Fees/commissions

    $0 for stocks, ETFs, options and some mutual funds

  • Account minimum

  • Investment options

    Stocks, bonds, fractional shares, ETFs, mutual funds, options

Pros

  • Some ETFs don’t have expense ratios
  • Mobile app is easy to use
  • No commissions on many types of securities

Cons

  • No futures or forex trading
  • High fees for broker assisted trades

TD Ameritrade

  • Fees/commissions

    $0 commission on stocks, options and ETFs

  • Account minimum

  • Investment options

    Includes stocks, bonds, mutual funds, ETFs, options, Forex, and futures

Pros

  • Excellent customer service
  • Intuitive trading platform
  • Large selection of mutual funds

Cons

  • Some mutual funds charge high commissions
  • Free research may not all be relevant to novice investors
  • Doesn’t offer fractional shares of stocks

Vanguard

Information about the Vanguard accounts has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

  • Fees/commissions

  • Account minimum

  • Investment options

    Stocks, bonds, ETFs, mutual funds, options, CDs

Pros

  • Excellent customer service
  • One of the largest ETF and mutual funds offerings around
  • Large number of no-transaction-fee mutual funds

Cons

  • $20 annual fee for IRAs and brokerage accounts, though investors can waive this fee by opting into paperless statements
  • Basic trading platform only
  • No robust research and data tools

Bottom line

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Increased scrutiny will make greenwashing tougher – Investment Executive

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The global conversation around climate and social issues will make engaging in greenwashing more difficult, says Jacob Hegge, an investment specialist with J.P. Morgan Asset Management.

Hegge said the growing popularity of bonds that focus on environment, social and governance (ESG) excellence is helping to identify bad-faith players who try to appear more conscientious than they are.

He allowed that investing in green initiatives can be confusing, given unclear and sometimes conflicting definitions, but standardization is coming.

“It’s great to see all the activity around ESG, but a consequence of this increased activity means a greater dispersion in terminology,” he said. “As ESG investing continues to grow, we’d expect to see more standardization. But until then, it’s important to understand that navigating the landscape can be difficult.”

Hegge said investors should test the terminology used to define green projects.

“Is the data or testing methodology readily available for investors to use? Is it easy to understand? Are the definitions explained and easily accessible? These are things investors need to be looking out for,” he said. “It comes down to transparency and consistency. And as ESG investing continues to grow globally, we expect this standardization to be more prominent in the market.”

The hot ESG market makes it all the more necessary for investors to know what they’re buying, Hegge said. “We do think it’s important for investors to look under the hood and pay attention to what investment firms are saying when they title a fund as being ESG. They really need to make sure that investment products are staying true to the prospectus.”

Hegge said green and sustainability-linked bonds are being issued at record levels, and issues are likely to increase.

“This year alone, green social sustainability and sustainability-linked bonds are expected to reach a combined issuance of over a trillion [U.S. dollars], which is doubled compared to last year,” he said. “And … some expect that investment in green bonds will actually double and reach US$1 trillion for the first time in a single year by the end of next year.”

Hegge said many companies are at the beginning of their green journeys, and their success in meeting ambitious targets will reflect their commitment level.

“Don’t narrow your opportunity set by being put off by low ESG scores. The important part is whether these scores are improving over time. You can find sustainable bonds even if they don’t have a sustainable label in the market,” he said.

“The global fixed-income market is very large and there are a lot of opportunities out there.”

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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