I get investment questions time and again from people looking for personal investment advice – especially as the year comes to a close and people are looking for a solution to their short and long-term goals. We all want to secure our futures, after all. People always look at products like GIC’s or RRSP’s but there are plenty of options. They’re fairly secure, however GIC & RRSP models can offer a less than desirable return. In fact, the common fallacy among investors is that people are to be happy with low returns as long as their money is “safe.” But, is it safe to depend on these models when looking for actual growth of your financial investments?
RRSPs are the most common investment among Canadians due to the tax-friendly nature of purchasing them. Canadians are able to offset their income and receive tax benefits in the short-term. That being said, those contributions are limited. A major disadvantage for high-earning Canadians (or anyone who has had a financial windfall) is the amount allowed to be sheltered. If anything, RRSP’s are more of a way for average-to-below-average earners in Canada to save for their future.
Once retired, you’ll have to change your RRSP to a Registered Retirement Income Fund by the age of 71. This can be difficult as, at that time, based on income that may still be arriving for high-earners, could create tax issues when investors should be enjoying the fruits of their labour.
Sure, while a GIC guarantees your principal, most GIC’s cannot give you the opportunity to be “liquid” in times of need. Also, the rate of return is relatively low compared to opportunities in real estate or even investing in stocks and mutual funds through an RRSP. Add in that GIC’s are subject to income tax if held outside of your typical RSP, and you’re looking at an investment tool that, in the end, really only acts as a savings account with a slightly better rate. Your principal is safe – but growth at a desirable rate in nearly impossible.
A Better Solution – Real Estate
While liquidity remains a huge issue with GIC’s and RRSP’s, the benefits to making investments in real estate include having a passive income that allows for further investment or helps in the short-term with an investor’s expenses. Cash flow from real estate is actually predictable, unlike investments in the stock market. Answering the question, “what does my future look like?” When comparing real estate growth rates to those of GIC’s and RRSP’s, a 30 year investment in real estate will also yield a MUCH HIGHER growth rate. So, when it’s time to retire, gains made in real estate investment will help the long-term investor reap far more of a reward for their efforts.
Feel free to get in touch with ME anytime and I’ll be happy to get you on your way to a mortgage that’s right for you and your loved ones.