Putting away lump sums of money every year or having payments come out of your account every month can seem pointless at times especially when you want to be spending that money. It can be difficult to stay motivated and on track with your goals when you see your friends and family living extravagant lifestyles. This can be especially difficult in the age of social media as we are constantly faced with seeing people on vacations or out with friends. The questions that faces us is why should we invest? We work so hard for the money, don’t we deserve to spend it? There are many reasons to invest. I will only be listing some of the more general reasons.
- Tax advantages
- Saving for Retirement
- Intragenerational Transfer
Depending on the location of your money it is possible to receive tax benefits from your investments. An example of this is that if you do not already receive a tax return opening a RRSP can allow you to be more efficient with your taxes and potentially enable you to receive a tax return. By putting money in your RRSP you reduce the amount of taxable income you have for the year which can only benefit you. When an account is registered you typically pay a fee to own it but you receive benefits from the account. One of these advantages can be utilized through a TFSA. Any interest, dividends, and capital gains are tax free for life. When you get into retirement tax free money is the best kind of money. For this reason it is important to maximize your TFSA, make sure to check out one of our previous blogs for more on investment accounts (Investment Accounts). In most cases people will empty their TFSAs first in retirement so they don’t have to pay taxes. All other accounts have tax withholdings once money is withdrawn.
Saving for Retirement
Investing is the most reliable way to retire comfortably. It may seem like something in the distant future but the greater your time horizon the better for you. Having compound interest on your side can allow you to build up more wealth than you know what to do with. Investing allows your money to work for you and take away some of the stress of saving enough funds to be able to retire. You want to be able to make the decision about when you want to retire and not be forced to work in the ladder stages of your life. Another advantage is that you can develop an income from your investments through dividends. This supplementary income is most often reinvested but especially when you are comfortable with your retirement fund and are financial secure this extra money can be used to subsidize some of the activities you enjoy.
Through investing it is possible to leave a larger amount of money for your children and grandchildren. There are investments that pass probate and leave more money in the hands of your family. Many investors want to keep the money in the hands of the family and leaving everything to your estate results in a significant loss of your wealth. Luckily there are many products that you can transition to in the late stages of your life to be able to pass more money directly to your family. One of those products are segregated funds, an insurance investment, due to it being an insurance product this money passes probate and a guaranteed percentage of it goes directly to your family. It is important to utilize these products to make sure the money you have worked hard for remains in the pockets of the people you love.
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