We’re constantly being advised to set aside money for a rainy day. However, investing in financial products that will help us retire better is not always a priority for most people. Many people feel they don’t have the money, don’t have the knowledge or find some other reason to avoid putting aside money for retirement. However, many of the most popular and effective investment products are affordable and relatively easy to understand. Once you prepare properly and research the different investment types available, you’ll be able to choose the ones that are right for you. These are five investments that could help you retire better.
1. Registered Retirement Savings Plans
Registered Retirement Savings Plan or RRSP’s are retirement saving schemes which were introduced by the Canadian Government. RRSP’s were introduced to help individuals increase the amount of money they have when they retire through tax sheltered investment portfolios which can last up to 30 or 40 years, giving investors a large nest egg once they retire.
In order to avail of this savings vehicle, there are certain conditions you must meet. First of all, you have to be under 71 years of age when you take out a Registered Retirement Savings Plan. Secondly, your income taxes must be filed with the Canadian Government. Finally, the amount you can contribute will be the lowest amount of $22,970 or 18% of the income you earn each year. RRSP’s also allow you to carry forward, withdraw or over contribute, depending on your circumstances.
2. Real Estate
In many cases, property is a risky investment. However, more astute investors understand how the property market works and reap the huge rewards this type of investment has to offer. Financial crashes come and go. Many people get turned off investing in real estate because of the huge losses and negative equity which can occur if a property loses value.
However, if you invest for the long term, the price of a property can increase by a huge amount over a number of decades. By the time you retire, a property may be worth many times more than what you paid for it. If you buy a property to rent in a popular area, this rental income reduces the cost you pay towards such an investment and means you will eventually own a property that you spent very little of your own money paying off.
Buying a stake in a company has the potential to reap huge rewards. However, like most investments it can be risky and you need to know what you’re doing. If you’re building up a nest egg for when you retire, you need to approach this type of investment with caution. You should only consider companies with a steady history, strong management and great long term potential because you want the value of your shares to steadily grow, rather than have large fluctuations and result in losses.
Investors have the option to purchase bonds from large businesses and governments. This type of investment involves loaning these organizations money which is paid back with interest at a future date. A maturity date is normally fixed which is the date the investor will get their investment and dividends for their bonds.
5. Mutual Funds
Over the long term it pays to diversify your retirement investments. Investing in a single type of investment can return huge rewards. However, it’s also a risky approach because the investment could perform badly. A more sensible approach is to invest in a mixture of shares and bonds, also known as mutual funds. The percentage of your funds that you invest in each type of investment depends on your approach to risk. If you’re investing long term, it’s advisable to buy less risky shares and bonds. Even a modest return each year over a long period of time will result in a better retirement fund rather than taking heavy losses with riskier investments.
Many people are unsure about how to approach retirement planning. The world of finance and the huge number of financial products available can be confusing. There are many horror stories about people who have lost their life savings because they invested in the wrong financial products or trusted the wrong people. Like any industry, the financial sector includes dishonest people and there are risks involved when you invest money for your retirement. However, the five investment options above are some of the most reliable and could help you retire better, when the time comes to live life at a slower pace.