#1 Should I contribute to an RRSP or a TFSA?
Of all the questions I get, this one's the toughest to provide a one-size-fits-all answer. Which type of account you should choose depends on three factors: How much you earn now; How much you'll likely earn in the future; And whether you'll need to access the money before you retire.
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In a perfect world, you would max out both your RRSP and TFSA. RRSP contributions will lower your tax burden right now, which is great. At retirement age, on the other hand, you'll be able to withdraw from your TSFA without being taxed on your decades of gains, which is also pretty great. But the world is not perfect — melted ice cream is not a slimming breakfast drink, and most of us don't make enough to put that kind of money aside every year. For solutions to this complex problem, book a time with me.
#2 If I have a chunk of money to invest, should I invest it all at once or space it out over time?
This is really a question about a concept called dollar-cost averaging. That's a term for investing your money over time, at regular intervals, with the idea that by buying into the market at many moments you'll decrease the risk that you'll buy whatever it is you're buying at a particularly high price. Studies show that investing it all at once is actually the better strategy; historically, average one-year returns for the all-in investor would yield 12.2 percent versus 8.1 percent for the dollar cost averager. Why? It's simple: investing beats not investing. You stand to lose more in future returns by having your money on the sidelines, trickling into the market, than you do from the risk of a momentary dip in the value of your investment.
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If a lump sum deposit is not an option, the second best scenario would be a regular deposit on an ongoing basis. Even if you don't get the higher returns, any return is better than having zero returns.
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The one scenario to avoid at all costs is cutting and running — investing all your money at once, getting spooked by the market, and selling everything to stem further losses. That is a recipe for losing your money.
#3 Do I really need life insurance?
If there is anyone relying on you financially, you need life insurance. The day that you die, your income stops. But your dependents will still have to pay for your mortgage, groceries, heat and all of the other bills. People have the greatest need for life insurance early in their adult lives when there are minimal financial assets coupled with high costs, such as child care, and significant debt, such as a mortgage. The unexpected death of a spouse at this stage of life would be financially devastating. Conversely, a retiree likely has substantial financial assets in investments or pensions, independent children and minimal debt. The death of a spouse at this stage of life would have less of a financial impact.
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The costs and types of life insurance vary greatly, making choosing the right policy important. Book a time so we can discuss the right fit you and your family.
#4 I am single with no dependants, Do I REALLY need life insurance?
This is a really big question from many people, there are many different reasons to get life insurance when you are young and single. here are some of them.
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1) your debts have co-signers. If you have student loans cosigned by your parents, and you happen to pass away while they’re still on the note, they’ll have to cough up the cash.
The same goes for other debts, whether it’s a mortgage, a car, or a credit-card. Any debt that was once yours, now goes to someone else, and it will become their responsibility if you should pass away unexpectedly. So it’s always a good idea to have at least enough life insurance to cover these expenses.
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2) Someone else is depending on you for their future. Maybe you don’t have children, but you know someone else will depend on you for their financial future. This could be aging parents or a disabled sibling. If you’re already planning to help this person financially, make sure you account for that in your life insurance.
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3) You own (or plan to go into) a business with partners If you have business partners, they also depend on you to keep things going. When you create a partnership, you should always have contractual provisions for keeping the business going if one partner should pass away. But in order to make that happen, each partner may need to commit to putting life insurance funds in to keep the business going.
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4) Maybe you want to have kids someday Let’s say you’re in your early twenties and don’t have kids now, or even want them for a few years. But you’re planning to have children in your thirties. Buying life insurance now could be a great option. The younger and healthier you are, the cheaper a policy will be.
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5) Your family has a history of significant health issues Do your parents have heart disease, diabetes, or other heritable health conditions? If you’re likely to be diagnosed with a condition like this in the future, buy life insurance now. While you’re still healthy, the insurance will be affordable. But if you are diagnosed with one of these conditions, it could get much more expensive.
Again, it’s best to plan for the future. If you want to have a family someday, plan to cover them with life insurance while you still qualify for affordable coverage. Then you won’t have to worry about it in the future.
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6) Someone will have to deal with your end-of-life expenses Even if you’re completely on your own, completely debt-free, and never want a family, you should still consider a small life insurance policy. This is because someone will need to pay your end-of-life and funeral expenses if the worst should happen.
A $10,000 to $25,000 policy is usually more than enough to cover these expenses. And it’s a good way to ensure that your friends and family members don’t have to go into debt to cover these expenses.
Thoughts? Questions? Comments?
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