Too much choice makes life miserable (yuck!!!), better put as “the paradox of choice“. To get started and avoid being plagued by too many options I suggest two bank accounts and one investment product ONLY.
Only Two Accounts: Open up two accounts with your bank:
- Flexible high-interest savings account: It has (a) no minimum balance required, (b) no money locked in, and (c) no withdrawal fees for a few monthly transactions. However, this account is subject to tax.
- Tax-free savings account (TFSA): Good news, there is no tax on growth. Bad news, any loss gets no tax break when investing in risky products. The money can be deposited and withdrawn at any time. However, there is a catch if re-contributing funds in the same year that exceeds the total contribution room. You don’t lose the contribution room; you just have to wait till the next year. There is ample total contribution room, $52,000 in 2017 if you were 18 years old and resident of Canada since 2009. Find out your contribution room, by checking CRA web-site or calling at 1-800-267-6999. There is no limit on how much money can grow inside TFSA.
One Investment Product
Once By default, any money in the registered account benefits from zero-risk high-interest savings (verify with your bank to make sure). You can improve the returns by setting up a mutual fund at your bank based on your comfort. No need for exhausting mutual fund huting, all the banks offer them and they are similar in nature. Assuming basic mutual funds, money can be pulled out at any time. You may adjust your direction and reinvest in another fund. The point is to get started, asap.
- Conservative (minimal risk): short-term (1-2 years), consists of money market (e.g. TD Canadian Money Market and/or bonds TD Short Term Bond.
- Balanced and Growth: medium-term (2-3 years), various mixes of bonds and equity e.g. TD Balanced Growth, TD Canadian Equity.
- Aggressive (maximum growth) : long-term (3 years+), heavily focused on equity e.g. TD US Index.
Generally speaking, higher risk = higher (potential) reward. Visualizing graphically.