Emergency savings (because you never know…)

Investing for the long term is great, but if you’re dipping into your retirement savings every time your car breaks down, you could be investing more strategically.

Start by saving some money in an emergency fund to pay for unexpected home or car repairs or even a sudden job loss. You don’t know when you’ll need this money, so make sure it’s easily accessible. A regular savings account may be all you need.

Short-term investing (over the next five years or so)

Your short-term investment goals might include a new car, a down payment on a home or saving for a child’s education.

There are many ways to invest for the short term, like guaranteed investment certificates, mutual funds, stocks and fixed-income securities like government or corporate bonds. Before you invest, make sure you’ll be able to access your money when you need it.

A good strategy is to take advantage of registered plans, like a Tax-Free Savings Account (TFSA). You can hold all of the investments we mentioned above within registered plans, and they have tax advantages over non-registered accounts.

Investment income isn’t taxed in a TFSA, so your portfolio grows tax free. When you withdraw from your TFSA, your withdrawal is also not taxed. And to ensure you can keep saving, whatever you take out of your TFSA is added to your contribution room the following year.

Long-term investing

If your goal is a little farther down the road, a TFSA, RRSP or RESP are great options. Since long-term investing is often about saving for retirement, it can be a good strategy to hold the bulk of your investments within a Registered Retirement Savings Plan (RRSP). You aren’t giving up any investment flexibility since all of the investment options we mentioned above are RRSP-eligible.

Why are RRSPs so important for retirement savings? Because you can deduct your RRSP contributions on your income tax return, which gives you an immediate tax benefit. Plus, your investment income will grow tax deferred until you begin withdrawing money from your RRSP. You typically do this when you retire and may have lower taxable income, resulting in more tax savings for you.

With an RESP, your tax on your investment income is deferred until money is withdrawn from the plan. If this future withdrawal is made by the child you’re saving for, their income as a student will likely be lower than yours, and therefore they will be in a lower tax bracket. There are also government grants available that match a portion of your contribution to the plan, increasing the amount you can put toward your child’s education.