3 Investment Tips for Millennials

 

 

Let’s be honest, investing isn’t always easy – at least it doesn’t always seem that way. With so many different options available on the market (from mutual funds to stocks), choosing the best strategy can be overwhelming. That’s where the assistance of a financial advisor comes into play.

 

It’s very easy to get caught up in hot tips, news headlines and guidance from family and friends. It seems like everywhere we look someone is giving millennials investment tips. The truth is finance is personal, and that’s why it’s so important to get tailored advice from a professional. With that being said, there are some pieces of advice that all young investors should know.

 

Here are three investment tips for millennials who want to start investing:

 

Start as early as possible

 

Yes, that’s right, young people should have started investing way before they were coined as millennials. As soon as you have an income (no matter how big or small) a portion of your paycheque should go into savings.

 

Thanks to a little thing called compound interest there are big benefits for millennials who start investing early. Compound interest helps your investments grow faster because your monthly earned interest (or dividends or capital gains) is reinvested back into your account. Therefore, the next month you earn interest on the previous month’s interest and so on for years to come. It’s brilliant.

 

Think long term with your strategy

 

According to Forbes, investing for the long term helps millennials see the bigger picture when it comes to risk versus reward in your portfolio. “Risk is kind of like that friend who regularly cancels plans but always comes through in a pinch. There might be heartache in the day-to-day, but in the long run, you’ll be glad you stuck it out.

In investing, more risk means the potential for more reward. Could you lose money and never collect that premium? Sure, but that’s unlikely when you’re in it for the long-term.”

 

Be honest with your financial advisor

 

Professional advice can help find an investment strategy that fits your individual plan, financial capabilities and life goals. However, that can only happen if you are completely honest with your advisor.

 

Think of a financial advisor as your financial doctor, they can’t totally assess the situation and provide a recommendation until they have all the information. This includes your short term and long-term goals, tolerance for risk, time horizon and general knowledge of the investing world.

 

If you have questions about investing or want to start investing but don’t know where to begin, I’m happy to help. Let’s chat about your goals and investment options for millennials.

 

*This content was originally created by Manulife Securities for information purposes only. It has been distributed for advisor publication.*

Who doesn't love eliminating tax? It's all about the "T"

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If the ability to receive more after-tax income today and offset capital gains tax with a future donation appeals to you, this Tax Advantaged Strategy may be for you. 

 

A "T" Class investment provides a regular stream of tax efficient cash flow from monthly distributions. A significant portion of the distribution is considered a tax-free return of your capital (ROC), deferring capital gains. Each monthly distribution (ROC) decreases 

the adjusted cost base (ACB) of the investment.

 

Down the road, the deferred capital gains would be payable if you liquidated the fund, however, if you include your favourite charity, The Canada Revenue Agency offers incentives to donate these publicly traded securities, which can reduce the capital gains inclusion rate to zero percent.

 

Let's look at an example:

 

John and Alice, age 60, want to start drawing a sustainable and tax efficient income from $200,000 of savings. The goal is to keep the $200,000 intact or even grow it at a modest rate. The fund generates 6% per year in annual cash flow. This would provide them with after tax income of $11,550 for 19 years-a total of $219,450. At that 19 year point the ACB of the fund is zero.

 

Assuming a 6% rate of return, the value of the fund would still be $200,000. If John and Alice cashed out the fund, the full $200,000 would be a capital gain payable to CRA. At the highest tax rate, this would be $40,150 in taxes.

 

Here's how it works:

 

John and Alice choose to transfer ownership of $59,000 of the portfolio to their favourite charity. The capital gain realized will not be taxed and they will receive a donation receipt of $59,000 which provides a tax credit of $27,140. They can then remove the remaining $141,000 from the fund and the tax of $26,785 will be offset by their donation receipt.

 

The results of this strategy are: tax efficient income, a sizable donation to charity, and a reduction in taxes owing to CRA.

 

Greg Glista 
Financial Advisor

 

Note: The opinions expressed here are Greg Glista's. Cornwall Wealth Management Group/Manulife Securities Incorporated are not responsible for the accuracy of any of the information supplied here.