Are You Saving or Investing?

Were you one of the many Canadians scrambling to call or visit their Financial Institution yesterday (Feb 29) to contribute to your Registered Retirement Savings Plan (RRSP) before the contribution deadline? I tried my best to give you a heads up on this deadline in my article earlier this month. ?

Sometimes with the rush to just get the contribution completed on time, many clients I’ve worked with over the years simply transfer cash into their Registered Retirement Savings Plan (often called a Daily Interest Savings Account), and then forget about it. This is your friendly reminder that it's also important to think about how to make that money grow and consider the options you have outside of just saving that money - investing it.

Below I've compiled some information from TD breaking down what saving is, what investing is and the advantages and downsides of both.

What is saving?

?Saving is simply putting money aside for future use, usually in a savings account.

Some Advantages:

Safety: One advantage of saving is that your money is safe and is typically guaranteed to pay a minimum interest rate to you.

Liquid: This means you can likely access the funds easier, since its not invested in an asset which you need to sell, and wait for the proceeds. Be careful, as if you withdraw from an RRSP (and some other registered plans) there may be penalties or tax consequences.

Emergency Reserve: It is good to keep cash as an emergency that is safe, so you can access it when needed.

Some Downsides:

Potential Return: Returns can be very low since they are usually guaranteed. This may not be sufficient to get you to your long term goals.

Inflation Impact: If the return on your savings is low, it may not be enough to keep up with inflation over time, so your funds are not growing at the same pace as costs.

What is investing?

On the other hand, investing involves putting your money into assets that have the potential to grow over time, such as stocks, bonds, real estate, or mutual funds.

Some Advantages:

Potential Return: The advantage of investing is that you have the potential to earn higher returns than saving, which can help your money grow faster and keep up with inflation.

Additional Income: Investments can help produce additional income such as dividends over time, and you may benefit from compound interest.

Preferred Tax Treatment: Some investment returns have preferential tax treatment like dividends and capital gains when they are invested in non-registered accounts, so it depends where the investments are held.

Some Downsides:

Potential Losses: Investing comes with risks, as the value of your investments can go up and down, and you could potentially lose some, or all of your money invested. It is important to work with an Advisor that as experience and can provide proper financial advice with investments for you.

Liquidity: Since investments typically need to be sold, there may be a delay in the time from when you sell the investment to when you receive the cash.

Costs/Fees: Typically purchasing investments have fees. There may be a management fee, account fee, or trading fee. It is best to discuss with the institution or Advisor you are working with to fully understand the cost to you.

Of course each individual or couple has unique circumstances and goals and the choice to save or invest depends on several factors and you should consult your financial services advisor for the best advice.

So if you've contributed funds to your RRSP but have not invested them yet, now is the time to start thinking about how to make that money work for you. Consider talking to a financial advisor to help you create an investment plan that aligns with your risk tolerance and long-term financial goals. By investing your money wisely, you can set yourself up for a comfortable retirement and ensure your hard-earned savings continue to grow over time.

Read more about Saving vs. Investing with TD.