Investment Advice: The Two Best Rules of Investing

December 5, 2019

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As a CERTIFIED FINANCIAL PLANNER® professional, I have become an advocate for the importance of financial planning and developing investment strategies that work for you. I love looking at how numbers work, how interest can work for us (or against us) over time, and how the savings we do today can have exponential benefit for us in the future.

Financial planning is more than just evaluating assets, liabilities, and income statements. I believe having a good financial plan contributes positively to our emotional and mental well-being.

My personal experience and ongoing education have taught me that investing and financial success does not rely on the stocks you pick or the mutual funds you use in your portfolio.  What truly matters are the good investing behaviours that you can repeat over time.

One of the more frequent questions I hear in my work is, “What’s the best financial or investment advice you have personally received?”

My response is this... follow the two best rules of investing:

  1. ALWAYS take the free money.
  2. If in doubt, see Rule #1.

Wait, you say. There is no such thing as a “free lunch”, so how can there be “free money”?  Some of the examples of free money are obvious. Some are less apparent. The commonality for both is that investors can often leave hundreds if not thousands of dollars unclaimed due to poor behaviour. Some of those behaviours might be due to lack of knowledge, versus poor decisions but the impact is still the same.

Making “Free Money": Types of Investments

The best way to invest your money depends on which goals you’re trying to achieve. So, where could you be leaving free money on the sidelines? Here are some of the investment options available at Libro.

Registered Education Savings Plan or RESPs: Canada Education Savings Grant (CESG)

  • Many Canadians miss out on a guaranteed 20% return on their unused RESP contributions.
  • Specifically, under the CESG, the government matches 20% on the first $2,500 contributed annually to an RESP, to a maximum of $500 per beneficiary per year.
  •  The lifetime maximum per beneficiary is $7,200, up to age 18. $7,200!
     

RESPs: Canada Learning Bond (CLB)

  • Lower-income Canadians may be missing out on $2,000 per child with NO contributions.
  •  A $500 CLB is provided for children of families who are of modest income, born after December 31, 2003. These children also qualify for CLB installments of $100 per year until age 15, as long as they continue to meet income thresholds. The total maximum CLB payable per child is $2,000. 

Take note, the deadline to contribute to RESPs for this year is December 31. That means you still have a month to make a contribution and receive your “free money”!

Registered Disability Savings Plan RDSPs – Canada Disability Savings Grant

  • The grant is an amount that the Government of Canada pays into a registered disability savings plan (RDSP). The Government will pay matching grants of 300%, 200%, or 100%, depending on the beneficiary’s adjusted family net income and the amount contributed.
  • An RDSP can get a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime (or until December 31 of the year in which the beneficiary turns 49).
     

RDSPs – Canada Disability Savings Bond

  • The bond is an amount paid by the Government of Canada directly into an RDSP. The Government will pay bonds of up to $1,000 a year to low-income Canadians with disabilities. 
  • No contributions have to be made to get the bond. The lifetime bond limit is $20,000. 
  • A bond can be paid into an RDSP until the year in which the beneficiary turns 49.
     

Other Simple Ways to Access "Free Money"

Some of the less obvious examples of accessing "free money" that many Canadian never take full advantage of include things like:

  • Employer group pensions – not maxing out on matching RRSP contributions, etc.
  • Employee share purchase plans – not taking advantage of plans that match some percentage of every dollar you put into company stock, etc. Think of this money as a guaranteed return!
  • Employer-paid training programs – always invest in yourself, especially if someone else will foot the bill.
  • Low-income earners not filing tax returns to qualify for income-tested benefits such as the Guaranteed Income Supplement.
  • Not applying for scholarships or bursaries at college or university – this can essentially be a high paying part-time job if successful. Many of these payments often go unclaimed!
  • Not using your entire employer-paid health benefits such as gym memberships, etc.
  • Missing minor tax deductions on income tax returns because it’s too much bother ($25 is still $25!).
  • Not using credit card rewards options such as cash back, and not paying down high-interest debt
  • Missing out on prepayment options on mortgages and other loans.

For investment advice that’s tailored to your needs, talk to someone who has a financial planning designation. Work at this a little bit and you will be amazed at how a little effort can go a long way.

In my current role at Libro Credit Union, I work with a dedicated team of financial Coaches, who focus every day on growing the prosperity of Owners. It is a huge responsibility when you entrust us with your assets and your financial goals, and our Coaches take it very seriously.  Many of our Coaches are fellow CFP professionals. Others are actively working towards completing a financial planning designation, and they would love to help.

Take the free money, and put it to work for you today. Moreover, if in doubt, go back and read Rule #1.

Please note: the content in this blog is general in nature and isn’t intended to replace the expertise of a Coach who truly understands your personal circumstances, and/or the advice of an accountant or tax specialist.

By Paul McQueen

Paul McQueen is the Vice President, Wealth at Libro Credit Union in London, Ontario.