It’s important to hold fast to the fundamental rules for a successful financial plan because they are proven principles for weathering any economic storm. Among the most important are:
- Smooth out market cycles by staying invested for the long term.
- Diversify your investments using effective asset allocation techniques.
- Select investments that match your appetite for risk and take maximum advantage of the ‘miracle of compounding’.
- And practice tax-efficient investing – an investing rule that assumes even more importance when returns and interest rates are low.
- Make the most of your Registered Retirement Savings Plan (RRSP). Your RRSP is an exceptional tax-saving, nest-egg building investment – and you’ll get a maximum tax reduction by making your maximum RRSP contribution each year. Fill up unused past contribution room for even bigger tax savings this year and a much larger nest-egg over time.
- Reduce taxes generated by your non-registered investments by selecting investments that benefit from lower tax rates – for example, investments that generate capital gains or dividends eligible for the enhanced dividend tax credit.
- Make an annual $5,000 contribution to a Tax Free Savings Account (TFSA). Your contribution isn’t tax deductible but money and interest inside a TFSA is tax-free and so are withdrawals, which can be made at any time for any purpose.
- Make the most of your spouse. Look into income-splitting with your spouse, having the higher-earning spouse contribute to a spousal RRSP, and/or having the spouse with a higher marginal tax rate make a prescribed rate loan to the other spouse in a lower tax bracket. When used correctly these ‘spousal options’ can effectively reduce a family’s taxes.