Ways to invest money when you can't buy a house in Canada
posted on March 29, 2023
Want to save your money for yourself, your children and/or retirement? Many would advise you to purchase a home as it's likely to increase in value over the long term while you live in it. But even with the recent drop in average home prices in Canada, the Canadian housing market is still out of reach for many Canadians. So how do you invest your money wisely as a long-term renter in Canada? We're here to help with some suggestions.
The stock market has a reputation for being a volatile and potentially dangerous way to invest your money. It can yield big returns and big losses. Often compared to gambling, people fear losing it all on the wrong stock purchases. There is inherent risk in buying stocks, but it doesn't have to be big. Here's how to get started investing in the stock market. According to The Credit Suisse Global Investment Returns Yearbook, the average return from real estate investment over 100 years (1900-2017) was 1.3%, but over 5% for investment in the stock market.
Open an RRSP
An RRSP is a Registered Retirement Savings Plan. It's a type of financial account in Canada that holds savings and investment assets for retirement. An RRSP enables you to defer taxes on your investment earnings, allowing more money to stay invested and grow. Your contributions lower your annual income, reducing your taxes. You can also borrow money from your RRSP if you need to in order to pay for school or buy a home without incurring a penalty -- as long as you repay what you borrowed in a set timeframe.
Open a TFSA
Over 18? If you're putting all your savings into a normal bank account, you're missing out on a great savings opportunity. Open a TFSA (Tax Free Savings Account) and invest the money in it instead to build wealth and earn interest on your savings over time. You can put up to $6500/year into a TFSA and put the money into investments like stocks and GICs. You won't pay tax on the interest you earn in the account and its associated investments.
As mentioned above, GICs (Guaranteed Investment Certificates) can be purchased via a TFSA or on their own through your bank. It's a great investment option for those who are worried about potential losses. It is a secure investment that guarantees 100% of your original investment while earning a fixed rate of interest or a variable rate of interest, or based on a specific formula. Some GICs are flexible, allowing you to withdraw part of the investment without penalty if needed, while others are locked for set time periods (like 1 to 5 years) where you pay a penalty to withdraw early. You will get better returns on GICs with longer terms, and different banks and financial institutions offer different competitive rates.
If financial literacy isn't your strong suit, consider signing up for WealthSimple. This app offers smart, simple investing, without the high fees and account minimums associated with traditional investment management. You can use it to invest your money in a globally diversified portfolio of low-cost index funds. It helps you earn the best possible return, while optimizing your tax bill. It handles automatic rebalancing, dividend reinvestment, and tax loss harvesting — services that were only available to the ultra rich in the past or that most people found too time-consuming and tedious to do on their own. The app features expert financial advisors who are always available to help. They can advise you as you plan your financial milestones and answer questions about risks and investment strategy. The app also offers high interest savings, commission-free trading and special features like automatically investing your spare change.
We hope this post helps you save for the future without entering the real estate market in Canada.