Investing At The Different Stages Of Life

Although most financial experts will urge you to start saving and investing as soon as possible, that isn’t always feasible for many individuals. There are a few milestones in life that mark the next chapter of investing tactics. 

It’s important to note that everyone’s financial journey will differ. Perhaps you decide to have children or are focused on travelling the world and don’t want to own physical real estate. No matter your financial goals, there are a few investment principles to apply to the different stages of life.

Early Stages of Life

Starting your career

A career is a bit different from a “job.” Many professionals have a few jobs in school or to gain experience before landing that first significant “career” position. Once you’ve got your foot in the door, it’s time to pivot from student loans or basic savings accounts into planning for the future. In this stage, we start being intentional with our money. 

Make sure you open a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA). You may open a TFSA before you open an RRSP. Having a TFSA as soon as possible is recommended. When you’re young, you’re likely in the lowest tax bracket so putting money in a TFSA makes sense as you can pull it out any time and you’ve already paid the tax. 

An RRSP becomes beneficial as your career grows because contributions can reduce your annual income and bump you into a lower tax bracket while working. This way, you pay the taxes later in retirement as you pull the money out when you’re hopefully in a lower tax bracket. 

When you start your career, commit to making monthly contributions towards retirement, no matter how small. Also, look into retirement plan offerings from your employer.

Getting a raise

Any time you get a raise, you should:

  • Put a portion of the increase into retirement savings.
  • Increase your cash reserve.
  • Look at new investment options to diversify your portfolio.

For many professionals, a raise could mean a seasonal bonus or a commission. Large amounts like this are the perfect opportunity to invest in alternative asset types to boost your savings and growth potential. 

Finding a partner

If you decide to get married or become common law, you suddenly have two incomes for a single household. That means extra income to put towards shared goals. This is the stage to re-evaluate your contributions and use the additional amount to invest for a shared future. Homeownership or real estate investing is the next goal for many couples. 

Middle Stages Of Life

Buying your first home

The next stage occurs when your career is established, you have savings and a few investments, and your debt-to-income ratio is healthy. This stage is typically when professionals start investing in real estate. You may be purchasing on your own or with a partner. Taking money out of your non-retirement savings for property makes sense, specifically the down payment, closing costs or moving fees. These short-term investments are helping you to diversify into real estate and your monthly housing costs are going into something that’s making you money in the long run as an asset. 

Homeownership isn’t for everyone. If you’ve decided you don’t want to own, but want to invest in real estate in another way, a mortgage investment corporation (MIC) could be the perfect alternative investment type for you. 

Having children if you choose

When you decide to start a family, be sure to focus on increasing your cash reserves and life insurance. A family may involve having your own children, acting as a godparent or foster parent, or being a hands-on aunt or uncle. Even if you don’t have children, consider if you want to help friends and family with theirs. How involved would you like to be, and do you want to help with their education or future?

If children are a part of your life, a portion of your savings will need to start going into a college or university fund. Opening an RESP early on will benefit you in the long run. 

Later Stages Of Life

When your children move out, or you reach your 50s

Once your children move out or you feel they no longer require the same amount of financial support, reevaluate your savings contributions and investments. Now is the time to focus on your retirement as you get closer. 

Your 50s or the empty-nest phase is the time to look for alternative investment types that have less volatility or chances of dramatic loss. You have a shorter amount of time to make up for these swings in the market the closer you get to retirement. 

When you retire

When you retire, you don’t simply sit back and start collecting pensions and dividends from your investments and convert your RRSP into an RRIF. Reallocate and balance your investments for the best potential income after retirement while still seeking growth to offset the impacts of inflation. Consider the amount you need per month to live comfortably, and then look at what tax bracket you would be in if you drew that out of your RRSP vs supplementing from your RRSP and paying the rest from CPP and other pension funds. 

How real estate investing can help

Real estate isn’t just for couples and professionals who make enough to afford a massive down payment. Real estate is an investment to consider at any stage of life because it doesn’t have to be home ownership or rental property. These forms of real estate investing mean high up-front costs and expensive maintenance commitments. 

Pooled real estate funds allow you to invest in real estate and capitalize on the historically dependable growth of the sector without having to wait for years to save a downpayment or take on the stress of property ownership and management. MICs also offer retirees a chance to capitalize on growth with less volatility and risk, which is characteristic of other alternative investment methods. 
If you’re wondering if investing in a MIC is the right thing for you at this stage of your life, get in touch with Jordan on our team today.

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