It seems that the old adage a penny saved is a penny earned has virtually disappeared like actual pennies. Most of us are finding it harder and harder to save for the future. We’d sooner invest our time and money in smartphones, tablets and apps than think about dabbling in the stock market. But to be fair, sometimes money management can be pretty confusing with its jargon, acronyms and options. To help decipher the world of money, we asked Gregory Brown, associate manager with Desjardins Financial Security Independent Network (www.dfsin.ca/gregorybrown) in Surrey, British Columbia, for his guidance.

 

Where should we start Greg?

 

That’s a good question and one I hear all the time: Should I open a TFSA or a RRSP? When do I need a RIF or a LIRA? What stock or bond should I buy? Or am I better off with a GIC? Then the conversation veers toward mutual funds, segregated funds and annuities. Part of this confusion is caused by conflicting messages that we receive from ads, TV programs, newspaper headlines and sometimes industry pundits. So let’s get right down to it: there really are only three investment options that beginners should think about: Cash, Fixed Income or Stocks.

 

• Cash is liquid, which means that you can access it immediately from your bank account. It doesn’t generate much or any return because it’s available on demand.

 

• Fixed Income: This includes bonds (government or corporate) or guaranteed investment certificates. In exchange for lending your money to the government or private institution for a set period of time, they promise to pay you a rate of interest.

 

• Stocks: When you buy a company stock, you are purchasing a share of the company’s profits. Your rate of return is determined two ways: 1) Stock value increases, or 2) The company will share its profits with you in the form of dividends. There is no guaranteed rate of return for stocks.

 

So what about RRSP, TFSA, RIF and LIRA?

 

These aren’t investments per se, but investment vehicles that receive a preferential tax treatment, as defined by Revenue Canada.

 

And what about Mutual Funds, Segregated Funds and Annuities?

 

Again, these are not investments but a form of investing. Each of these investment types allow you to pool your money so that you can economically purchase several investments at once. They’re also available in different formats and offered by different types of financial institutions.

 

The important thing, says Brown, is to learn as much as you can about cash, fixed income and stocks before you start invest. Remember to dream big and make a plan: it’s the best way to reach your goals. To learn more about personal financial planning and to find an advisor, visit the Desjardins Financial Security Independent Network website at www.dfsin.ca.

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Courtesy of Newscanada