How to Build Investment Accounts in Canada

If you take a broad perspective on investing, it could be said that it’s the same thing regardless of which country you’re doing it in. In a sense, you’d be correct. After all, what more is investing aside from designating money for certain funds in hopes of growth? 

Investing is similar no matter where you go – in principle, anyway. The goal is generally much of the same in each country but, just like legislation and culture, every nation has their own investing structure and regulations surrounding it. 

Looking at building an investment account in the country of Canada. It’s not too dissimilar from the United States, which houses the largest stock exchange in the world in the New York Stock Exchange (NYSE). Although Canada may not have the biggest stock exchange or population of investors in the market, they do have their own respectable investing infrastructure set up, and here’s how you can take advantage of that. 

Take Stock & Audit Your Unique Financial Situation

There truly is not a single one size fits all investment strategy to follow, regardless of where you live. Even the best investment accounts in Canada won’t bring financial success if the funds aren’t allocated in alignment with your personal goals. 

The first and foremost thing to consider is your age. An 18-year old’s investment strategy will be a bit different from someone who just turned 60 and is glancing toward retirement on the horizon. Some can afford more risk than others, some can’t. The tables can easily be turned, and some 18-year old’s may have no room for risk because of lack of funds, whereas the more seasoned investor has managed his finances well and can afford to lose a bit on venture. This just goes to show how circumstantial investing can be.

Combine your age with your financials. Do you have a job? Are you in school? What’s your annual average income? Do you have a decent savings for emergencies or loss of income? Is your salary expected to taper up or down over the course of the next 5-10 years? Ask yourself these questions, as well as taking an honest assessment of your expenses, both necessary and liberal costs, as well as your insurance situation.

Compile everything about you, your money, and your goals into an investment strategy that suits where you want to go and steers your money toward the desired outcome you see in the future. No single person can do this for you. 

Looking at Investing Options for Canadians Like You.

The most significant stock exchange in Canada is the Toronto Stock Exchange (TSX). Much like the United States’ NYSE in terms of stature, this is where most trading is done. Whether you’re a day-trader or someone who buys individual stocks, the equities in your fund will likely be held and traded on this exchange.

In terms of investment accounts for Canadians, they’re similar to what the US and other major countries have introduced, with some slight differences. 

  1. TFSA Accounts

You have the tax-free savings account (TFSA), which is a form of investment account that can hold differing forms of assets, including cash, but is not taxed at all upon withdrawal for capital gains. This is very similar to what America has in the form of a Roth IRA, where your investments are not able to be written off on your tax deductions, but you do not have to pay on them later when reaping the benefits. 

This is ideal for those who expect their income to increase, or be higher at the time they plan on withdrawing their investments from the account in comparison to what they’re paying on the income at the time of deposit. The Canadian TFSA also has an annual contribution limit – for 2020, the limit is $6,000 CAD. 

It comes with some caveats though. If you failed to meet that contribution amount for the year prior, whatever amount under $6,000 you were you would be allowed to contribute in the following year. So, if you only contributed $4,000 for the past three years, in 2021, you’d have $6,000 of “rollover” contribution room. 

  1. RRSP Accounts

A registered retirement savings account is much like a standard IRA account in the sense that your contributions are tax deductible and you will pay taxes on them upon withdrawal. You’ll also pay a withholding tax for any reason other than retirement, post-secondary expenses, or the purchase of a new home. Your contribution limit will also be reduced by the amount you withdrew. The dollar amount contribution limit for 2020 is about $27,000 CAD, and to qualify for opening one you’ll need to be under the age of 69. 

At age 71, your RRSP will automatically be converted into an RRIF, which is a registered retirement income fund, with payments needing to begin dispersing by age 72 at the latest. There is a minimum annual withdrawal, and the withdrawals will be taxed at your marginal tax bracket. 

  1. Cryptocurrencies 

Investing isn’t just for retirement, and, although cryptocurrency very well could help you do that, it’s far more than just a retirement account. Cryptocurrency is something that Canadians can add to their investment portfolio to promote breadth and depth within their asset classes.

Much like gold, except likely with more upside, cryptocurrencies currently serve as somewhat of an alternative asset to more traditional governmental currency-backed investments. You know inflation is always a risk, and at the moment interest rates are regressing after having previously given savings account owners a glimmer of hope. These uncertainties make cryptocurrencies a quality alternative, contrarian asset to hold.

  1. Brokerage Accounts

It should go without being said that you have the classic brokerage account used for trading equities, options, and other assets on the market in the day to day. Taxed at your traditional capital gains rates, these aren’t generally used for retirement purposes alone, but for more active and exploratory investors. Nevertheless, they’re a useful tool to have in your belt of investment account types.

In Summary, Have Some Depth 

It’s great to have a spread-out portfolio over multiple account types, and you needn’t worry about committing to just one. Implementing this alongside a customized investment strategy is enough to produce some precipitous gains in any country, including Canada.

Marion Underwood
Marion Underwood has been working as a blogger ever since he was young. His blog is filled with informative articles on business, investment, and finances. Marion also writes guest posts about these topics to other online platforms.

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