Strategies


Self-Directed Plans

Self-Direct RSPs
Self-Direct RSPs allow investors to hold different types of investments under one "umbrella." 

Self-Direct RIFs
Self-Direct RIFs are similar to RSPs except that an income must be paid from a self-direct RIF. One major advantage of a SDRIF over holding many RRIFs with different institutions is that you only have to draw income from one source, making much less paperwork.

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Pensions / Pension Payouts

Many people have a pension plan through work. What some people don't realize is that their pension does not have to turn into an annuity. Your pension has a commuted value that in many cases may be several hundred thousand dollars. This money can be rolled into a RIF-like investment that leaves control with the owner. Unlike most pensions, it also allows for the full value of your pension to be passed to beneficiaries when you die.

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Monthly Purchase Plans

A monthly purchase plan is the best way for people with a regular monthly income to invest. On a regular basis, money automatically comes out of your bank account or is deducted from your paycheque and invested. Most people find that they hardly miss the money that they invest each month.

One of the major advantages of investing this way is that you are "dollar cost averaging," meaning that you buy when the market is at highs and lows. This helps to take some of the risk out of investing in equity markets.

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Laddering GICs

Laddering is a strategy used by GIC investors where they stagger the maturity of their investments. There are two main advantages to doing this:

  1. It provides for more regular income because your GICs pay out at different times.
  2. It reduces the risk of having to invest at a lower rate since your GICs are maturing constantly and being renewed for longer terms.

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Joint / In-Trust Accounts

Jointly held investment accounts provide many benefits. They include maximizing income splitting with a spouse or child; automatic transfer on death without lawyer, executor or probate fees.

Disadvantages of joint accounts include unwanted losses due to marriage break-ups and unforeseen lawsuits and bankruptcies.

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Diversification of Mutual Fund Types

Diversification of investments is one of the most recommended strategies to reduce risk in any portfolio of investments. Diversification means holding different percentages of GICs , Mutual Funds , etc., but it also means staggering maturity dates in GICs and holding different types of mutual funds.

Mutual funds can be diversified by holding funds with companies that are located in different regions of the world, or have investments of stock from companies that vary by sector of economy, (eg. health care, biotech's, financial, resources, industry, etc.).

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Labour-Sponsored Investment Funds

LSIFs or Labour-Sponsored Investment Funds offer significant tax credits and can earn modest returns. Investors should be aware that these funds can prove to be moderate to higher risk because of their nature. The fund invests primarily in smaller start-up companies that can default during their initial beginnings.

The federal and provincial governments give credits up to a maximum investment and these credits vary from province to province. In Saskatchewan, the credit is a 15% federal credit and a 20% provincial credit with a $5,000 maximum purchase eligible for the deduction and an 8-year holding period.

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Registered Education Savings Plans

RESPs are Registered Education Savings Plans that are savings plans intended to save for a child or several children's education. These plans allow investments to roll tax-free until the beneficiaries decide to use it for further education. At that time, the money is taxed in the hands of the beneficiary. The student can use the money for items such as tuition, room and board, vehicle expenses / insurance, groceries, clothing, etc.

The Canadian government has identified saving for education as a key component for the promotion of education to the general public. In doing so, it has created an incentive program called the CESG (Canadian Education Savings Grant). The federal grant will pay a 20% matching grant up to a maximum of $400 per child per year.

If the child does not attend an educational institution, the grant money would have to be paid back - but not the original principal or any of the earnings. The money can also be rolled into the contributor's RRSP.

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Short-Term Investments / Money Markets Mutual Funds

A money market is the safest form of a Mutual Fund. The money market is a group of interest-bearing investments such as T-Bills, Federal and Provincial Bonds, with no stock holdings. Money markets can be very liquid, allowing access to cash within a week, yet earning typical one-year GIC rates.

Tax-wise, the money markets produce dividend and capital gain that is tax-favourable over interest.

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