Laurie wants to begin investing, but…(Part 2 of 6)

…she needs to figure out whether she should be investing in:

  • A tax-deferred portfolio (for example, a Registered Retirement Savings Plan – RRSP)
  • Or, in a Tax-Free Savings Account (TFSA)
  • Or, in a taxable portfolio (I’m going to assume that paying taxes every year on your portfolio’s return is not Laurie’s preferred option, so we’ll ignore the taxable portfolio for now)

According to the Ontario Securities Commission’s GetSmarterAboutMoney, “The main difference between an RRSP and TFSA is the timing of taxes: An RRSP lets you defer taxes – an advantage if your marginal tax rate is lower in retirement. With a TFSA, you’ve already paid tax on the money you contribute – an advantage if your marginal tax rate is higher when you withdraw the money.”

SunLife has a chart that suggests that a family with a mortgage use:

  • A TSFA as an emergency fund and to save for vacations
  • A Registered Educational Savings Plan (RESP) to save for children’s education and to collect the Canada Education Savings Grant
  • And an RRSP to save for retirement. I would suggest Laurie start with an RRSP, especially if she doesn’t have a company sponsored pension plan.

So where does Laurie open one of these investment accounts? Find out in Part 3.