With 2020 now over, Canadians can focus on getting their finances back on track.
The COVID-19 pandemic has had a variety of effects on Canadians across the country. Many, unfortunately, lost their jobs during this pandemic. For those lucky enough to keep their jobs, they may have seen an increase in their savings rate.
The pandemic has forced stores across the country to close, leaving many Canadians with fewer opportunities to spend their paychecks.
Whether you’re trying to rebuild your finances after the tough year of 2020 or looking to take the next step to increasing the size of your retirement nest egg, these three steps will help you reach your financial goals.
Financial resolution n ° 1: open the right accounts
Everyday banking products, such as chequing and savings accounts, play an important role in the lives of consumers.
The limitation with chequing and savings accounts is that they are not usually the best account to use for medium to long term savings goals. These goals could include saving for a down payment on a residential property or retirement nest egg.
Before you even think about what types of investments you would like to hold, you need to make sure that you have the right accounts that match your goals.
The Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP) are the two accounts you’ll want to consider. Both accounts offer tax benefits for Canadian residents that you should take full advantage of.
The beauty of the TFSA and RRSP is that Canadians aren’t limited to using just one. Depending on your schedule, you can use only one of the two accounts. But if you have multiple savings goals, you’ll probably want to take advantage of the benefits of both accounts.
Financial resolution n ° 2: invest in the stock market
The stock market can be a daunting place for new investors. The excess of options that you can actually invest in is often one of the main reasons Canadians give up investing in the market altogether.
The good news is that investing doesn’t have to be complicated. With exchange-traded funds (ETFs), Canadians can spend as little as an hour a month on their finances while achieving peak returns.
ETFs allow investors to be fully invested in the stock market without having to choose individual stocks. ETFs are stocks that match your style and investment objective. Owning this type of fund comes at a cost, however, but it is often very minimal.
ETFs charge a management fee to investors to keep the fund in balance. Investors can easily find ETFs that charge less than 0.10%, which is much lower than what many mutual funds charge today.
Canadian investors have all kinds of options to choose the right ETF for their portfolio. Whether you are looking for an income, growth, or a specific geographic exposure, there is probably an ETF already created for you.
A total stock index is a great place for new investors. Funds such as Vanguard FTSE Canada All Cap ETF, allow Canadians to own a mix of small, medium and large capitalization companies across a wide range of different industries.
Financial resolution # 3: invest in individual stocks
Some investors want to be much more involved in the management of their portfolios. For them, investing in individual stocks is the next logical step.
Investors should keep in mind that there is absolutely nothing wrong with owning both individual stocks and ETFs in their portfolios. Total equity funds can form a solid foundation for a portfolio. It allows investors to take more risk by investing in individual stocks.
While adding individual stocks to a portfolio can add more risk and volatility, it balances out with the potential to generate higher returns.
For investors who are a little more risk averse, Fortis (TSX: FTS) would be a great first stock to buy. The utility company provides an essential service to Canadians across the country.
Even as a relatively stable company, the volatility will likely be higher than that of a total equity fund. On the positive side, Fortis has easily outperformed the Canadian stock market performance over the past decade.
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