Investment Services offered by Gtax Saving in Brantford, Ontario
In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of its constituent. Therefore, any risk-averse investor will diversify to at least some extent, with more risk-averse investors diversifying more completely than less risk-averse investors.
Diversification is one of two general techniques for reducing investment risk. The other is hedging. Diversification relies on the lack of a tight positive relationship among the assets' returns, and works even when correlations are near zero or somewhat positive. Hedging relies on negative correlation among assets, or shorting assets with positive correlation.
TYPES OF INVESTMENTS
There are many types of investments; few of them are discussed below for basic information only.
Most people have the philosophy that they save whatever they have left after paying their spending. But you should save first then control your spending. In banks you get very less interest on saving.
- Growth rate is low.
- Good in retirement years.
- Good if you want no risk.
The term bond is commonly used to refer to any securities that are founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out.
The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-free. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities.
- Growth rate is low.
- Good in retirement years.
- Good if you want less risk.
You purchase stocks, or equities, as your advisor might put it, you become a part owner of the business. This entitles you to vote at the shareholders' meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends.
While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren't guaranteed anything. Many stocks don't even pay dividends, in which case, the only way that you can make money is if the stock increases in value. Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential: you must assume the risk of losing some or all of your investment.
Mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stocks, small stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain countries, etc.
The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment. You should get a better return by giving your money to a professional than you would if you were to choose investments yourself. There are some aspects about mutual funds that you should be aware of before choosing them.
A segregated fund is an investment fund that combines the growth potential of a mutual fund with the security of a life insurance policy. Segregated funds are often referred to as "mutual funds with an insurance policy wrapper".
Like mutual funds, segregated funds consist of a pool of investments in securities such as bonds, debentures, and stocks. The value of the segregated fund fluctuates according to the market value of the underlying securities.
Segregated funds do not issue units or shares; therefore, a segregated fund investor is not referred to as a unit holder. Instead, the investor is the holder of a segregated fund contract. Contracts can be registered (held inside an RRSP) or non-registered (not held inside an RRSP). Registered investments qualify for annual tax-sheltered RRSP contributions. Non-registered investments are subject to tax payments on the capital gains each year and capital losses can also be claimed.
MATURITY & DEATH GUARANTEES
Guarantee amounts are offered in all segregated funds whereby no less than a certain percentage of the initial investment in a contract (usually 75% or higher) will be paid out at death or contract maturity. In either case, the annuitant or their beneficiary will receive the greater of the guarantee or the investment’s current market value.
A reset option allows the contract holder to lock in investment gains if the market value of a segregated fund contract increases. This resets the contract’s deposit value to equal the greater of the deposit value or current market value, restarts the contract term, and extends the maturity date. Contract holders are limited to a certain number of resets, usually one or two, in a given calendar year.
If a beneficiary is named, the segregated fund investment may be exempt from probate and executor’s fees and pass directly to the beneficiary. If beneficiary is a family member (such as a spouse, child, or parent). The investment may also be secure from creditors in case of bankruptcy. These protections apply to both registered and non-registered investments.
POTENTIAL CREDITOR PROTECTION
Granted certain qualifications are met, segregated fund investments may be protected from seizure from creditors. This is an important feature for business owners or professionals whose assets may have a high exposure to creditors.
COST OF THE GUARANTEES
The shorter the term of the maturity guarantees on investment funds - whether they are segregated funds or protected mutual funds - the higher the risk exposure of the insurer and the cost of the guarantees. This inverse relationship is based on the premise that there is a greater chance of market decline (and hence a greater chance of collecting on a guarantee) over shorter periods. A contract holder's use of reset provisions also contributes to costs, since resetting the guaranteed amount at a higher level means that the issuer will be liable for this higher amount.
Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature;
An interest vested in this; an item of real property; buildings or housing in general. Also: the business of real estate; the profession of buying, selling, or renting land, buildings or housing.
- Maintenance cost of property.
- Property tax.
- Hard to sell quickly at real market price.
- Coins and currency.
You can buy coins or currency to sell at high price. Sometimes price varies very quickly. You can get profit.
You can buy gold, silver, oil, platinum, copper etc in future contract or in physical form.
This type of investment is like gambling if you invest in future. The gain and losses are there. The future contracts are good for farmers to pre sell their crop before harvesting. The contract is a promise to take delivery of the commodity at some date in future. Put and calls are occurred in commodities.
DOLLAR PRICE AVERAGING
Never confuse dollar price averaging with simple averaging. For instance, let's say an investor purchased 1,000 shares of Xyz Company $40 per share at the first interval and another 1,000 shares of stock at the next for $20 a share. That would make the total investment $60,000 and the average stock price $30. However, this is not dollar cost averaging - it is simple averaging. The average cost of the stock will not trend towards the current market value if you do not remain consistent in your investment strategy. Using dollar cost averaging, a person would invest a fixed amount - say $30,000 per interval. Thus, when buying Xyz company stock at the first interval, a person would end up with 750 shares of stock at $40/share and 1500 shares at $20 each. This adds up to 2,250 shares and an average cost of $26.66 - closer to the current market value of $20 than the simple averaging strategy.
CONSUMER PRICE INDEX (CPI)
A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indexes and sub-sub-indexes are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index The annual percentage change in a CPI is used as a measure of inflation. A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values.
What type of investment is good for you depends on your
- RISK TOLERANCE
So discuss with us all these things before investing.
A Registered Retirement Savings Plan (RRSP) is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act. Rules determine the maximum contributions, the timing of contributions, the claiming of the contribution tax credit, the assets allowed, and the eventual conversion to an RRIF (Registered Retirement Income Fund) in retirement. Approved assets include savings accounts, guaranteed investment certificates (GICs), bonds, mortgage loans, mutual funds, income trusts, corporate shares(stocks), foreign currency and Labour-sponsored funds.
An account holder is able to cash out an amount from an RRSP at any age. However, any amount withdrawn qualifies as taxable income and is therefore subject to withholding tax.
Before the end of the year the account holder turns 71, the RRSP must either be cashed out or transferred to a Registered Retirement Income Fund (RRIF) or an annuity. Until 2007, account holders were required to make this decision at age 69 rather than 71.
Investments held in an RRIF can continue to grow tax-free indefinitely, though an obligatory minimum RRIF withdrawal amount is cashed out and sent to the account holder each year. At that time, an individual's income is expected to be lower and therefore subjected to less tax.
Special withdrawal programs
Home Buyer's Plan (HBP)
While the original purpose of RRSPs was to help Canadians save for retirement, it is possible to use RRSP funds to help purchase one's first home under what is known as the Home Buyer's Plan. Canadians can borrow, tax-free, up to $25,000 from their RRSP (and another $25,000 from a spousal RRSP) towards buying their residence. This loan has to be repaid within 15 years after two years of grace. Contrary to popular belief, this plan can be used more than once per lifetime, as long as the borrower did not own a residence in the previous five years, and has fully repaid any previous loans under this plan.
Lifelong Learning Plan (LLP)
Similarly to the Home Buyer's Plan, the Life-Long Learning Plan allows for temporary diversions of tax-free funds from an RRSP. This program allows individuals to borrow from an RRSP to go or return to post-secondary school. The user may withdraw up to $10,000 per year to a maximum of $20,000. The first repayment under the LLP will be due at the earliest of the following two dates.
- 60 days after the fifth year following the first withdrawal
- The second year after the last year the student was enrolled in full-time studies
The Tax-Free Savings Account (TFSA) is an account that provides tax benefits for saving in Canada. Contributions to a TFSA are not deductible for income tax purposes. Investment income, including capital gains and dividends, earned in a TFSA is not taxed, even when withdrawn.
The TFSA is an investment option for Canadian residents 18 years and older wanting to save for the future. The TFSA's flexible structure allows the holder to be able to withdraw money from the account at any time, free of taxes. The allocations into the account are non-deductible; however this represents a lucrative opportunity for individuals with left-over income to invest in a savings vehicle, without the pressure of time constraints. The account also alleviates the burden of the capital gains tax. The interest-income will be able to compound tax-free. In essence, the account-holder can withdraw any amount out of the account, free from capital gains and/or withdrawal taxes.
One mechanism in the design of the TFSA is the carry-over aspect. Any unused space under the $5,000 cap can be carried forward to subsequent years, without any upward limit. The TFSA also allows income splitting to an extent, because a higher-earning spouse can contribute to the TFSA of a lower-earning spouse.
A Registered Education Savings Plan, or RESP, is an investment vehicle used by parents to save for their children's post-secondary education in Canada. The principal advantages of RESPs are the access to the Canada Education Savings Grant (CESG) and a source of tax-deferred income.
An RESP is a tax shelter, designed to benefit post-secondary students. With an RESP, contributions (comprising the investment's principal) are, or have already been, taxed at the contributor's tax rate, while the investment growth (and CESG) is taxed on withdrawal at the recipient's tax rate.
An RESP recipient is typically a post-secondary student; these individuals generally pay little or no federal income tax, owing to tuition and education tax credits. Thus, with the tax-free principal contribution available for withdrawal, CESG, and nearly-tax-free interest, the student will have a good source of income to fund his or her post-secondary education.
Canada Education Savings Grant
The Canada Education Savings Grant (CESG) is provided to complement RESP contributions, wherein the government of Canada contributes 20% of the first $2,500 in annual contributions made to an RESP. After changes introduced in the 2007 Canadian federal budget, the government may contribute up to $500 per year to a participating RESP. This income is available upon withdrawal from the RESP by a post-secondary recipient, with a maximum lifetime contribution of $50,000. Any contributions over this amount are subject to taxation.
The government grants introduced in 2005, entitled Additional CESG, allowed an additional 10% or 20% for a total of an extra 30 or 40 cents on each dollar of the first $500 contributed to an RESP, depending on the family income of the beneficiary's primary caregiver. An application is made through the promoter of the RESP, which is often a bank, mutual fund company or group RESP provider.
Canada Learning Bond
The government of Canada also provides a Canada Learning Bond (CLB) to encourage low-income families to contribute to an RESP. Families with children born on or after January 1, 2004, and who receive the National Child Benefit, will receive an additional $500 CLB when they open an RESP and $100 for each year they remain eligible.