The Naked Buck – Exposing Financial Truth

You may be asking yourself this question.  You may also be asking:   Is it a good idea to throw good money after bad?  Will I not just lose all the money I put in?  Would it not be better to put the money in the bank or even under my mattress?

These are complicated questions.  To better understand them, there are some underlying  issues that need to be discussed: 

1. What is an RRSP and what does it do and how does it work?
2. What will the markets do in the future?
3. How can I know if I have enough time to make my RRSP grow?
4. What about a TFSA, should I put my money there instead?

1.         An RRSP is a tool provided by the government of Canada to allow people to put money into almost any type of investment, in order to save for the future, while saving  taxes at the same time.  The money put away in an RRSP is paid with pre-taxed money, which means that you will get a tax deduction on any money you put in.  If you have taxable income in any given year you should put in as much money as you can, in order to bring your taxable income down.  To find out how much you can put in, look at your Notice of Assessment (the form you received in the mail after you submitted your taxes) to find your eligibility for that year.  You will have to pay tax later, when you withdraw the money, but usually at a lower tax rate.

2.         This is the 64 million dollar question.  

When I look out the window right now I see snow, and lots of it.  I know that in 60 to 90 days all the snow will be gone and the leaves on trees will start to open.  I know this because I have lived through a number of seasons, and the seasons change without fail.

The markets will also turn around.  It might take some time, but it will happen.  I know this because I have lived through a number of financial cycles, and they have all  rebounded without fail. 

3.           As discussed briefly, RRSPs can be put into almost any type of investments.  The answer to this question depends on how long you have before you need the money.  If you have at least 10 to15 years before you will withdraw the funds then you need to put your money into a well-diversified balanced fund. 

 If you have less than 5 years, I would suggest some sort of fund with guarantees (there are a number of them out there.  You should meet with your financial advisor to see what is right for you).  You need to start thinking of keeping what you already have.  Instead of looking at huge returns on your money now is a time to protect it.

4.           A TFSA, or Tax Free Savings Account, is a new program set up this year by the Government of Canada to help people save money.  It is just another tool to help save taxes.  This type of account is different from your savings account at the bank, which only pays you interest.  You can put up to $5000.00 per year into almost any investment you choose, and the income from the investment is not taxed.  You can also pull out the money at any time without tax being owed.  This is a great way to save for a car or some other large purchase.  You can redeposit the money you withdraw at a more convenient later date, say if you get an inheritance or other inflow of cash.

In conclusion, the best thing you can do this tax year is to fill up your RRSP for the tax savings, and if you have extra cash put it into a TFSA. 

For more information please contact us at 250.368.9600 or toll free 800.932.9989 or email financial@septen.com 

Bruce Penner

Customer Service Representative

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