Right now, while you’re in dental school, is one of the best times to start building your retirement nest egg. Your investment planning advisor can explain all the advantages of starting to invest early, but here’s one reason: an investment made now can be worth significantly more than one made when you’re older. Say you start investing $1,000 annually at age 25 in an RRSP (registered retirement savings plan). By age 65, you’ll have $164,000 in your RRSP, if your investments earn an average annual rate of return of 6 per cent. However, if you wait until age 45, you won’t be able to save as much. Even if you double the amount you invest to $2,000 annually, at age 65, you’ll only have $78,000.
You’ll find it easier to stick to a program of regular investing, if you have the money transferred automatically from your bank account to your RRSP account through pre-authorized chequing.
Your investment planning advisor can also help you choose investments that are appropriate for your investment goals and timeframe. If your investment portfolio is well-balanced among equity, income and cash investments, at least one component should perform well in any given market condition.
- Cash funds invest in very safe assets such as Treasury Bills and are low risk. However, in exchange for this safety, you usually receive a low rate of return.
- Income funds invest in securities (e.g. bonds, mortgages and stocks) which pay regular income in the form of interest and/or dividends. These funds have a higher potential for returns than cash funds but also carry a higher risk.
†Due to restrictions on advisory services, investment planning advice is not available to residents of Quebec.
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- Equity funds invest in company shares or stocks. Because stocks can go up or down in value at any given time, these funds are considered high risk in the short term. However, in the long term (over 10 years), equity funds usually perform better than all of the other categories.
- Balanced funds invest in a mix of stocks, bonds and cash investments. Due to the diversification offered among all three asset classes, a balanced fund provides "medium" risk —less risk than a pure stock fund.