(Bonus) Savings VS Investments

Investment Accounts

Registered Retirement Savings Plan or RRSP

• A type of Canadian savings and investment account
• Its purpose is to promote savings for retirement by Canadians
• Normally, you have to pay taxes on any earned income. You can claim a tax credit on the amount of money you deposit into your RRSP account so that when you file your taxes, you will get that tax money back 💲
• When you retire, you will start withdrawing money from your RRSP account and will start paying taxes on the amount of money you withdraw then
• Every year, RRSP accounts have a maximum contribution limit

Tax Free Savings Account or TFSA

• A type of Canadian savings and investment account
• It's purpose is to promote regular savings by Canadians
• Normally, you have to pay taxes on any earnings that you make in your savings or investment accounts. Any earnings you make in your TFSA accounts will not be taxed
• Every year, TFSA accounts have a maximum contribution limit

Guaranteed Investment Contract or GIC

• A pension plan purchased through a bank or an insurance company
• You are guaranteed to get back at least the amount of principal you put in
• GICs usually have a lower interest rate, which are not guaranteed
• But since you are guaranteed to get back the principal amount, GICs are low-risk investments

Stocks

• When a company wants to raise money (for example, to research and develop more products), they can sell off a portion of ownership of the company in the form of shares
• We can own these shares by purchasing stocks
• Stocks can help you make money one of two ways:
• If the company does well, the stock prices go up because more people want to own part of this company. You can sell off your stocks for more money than you bought them for
• Some companies will pay its shareholders something called dividend, which is a portion of the revenue that the company makes
• There are two main types of stocks that you can buy
• Common stocks:
• these are majority of stocks that are available
• they give you voting rights to some decisions in the company
• As a shareholder, you share the profits and losses of the company
• Preferred stocks:
• these pay a fixed dividend
• prices of these stocks are usually more steady
• If things go bad, preferred stock shareholders get paid before common stock shareholders
• Investing in stocks involves risk -- If the company does poorly or goes bankrupt, then you won't be able to sell your stocks that you already paid money for