The Bank of Canada has announced oversized hike after oversized hike of its key interest rate as inflation continues its rampage.
Unfortunately, inflation is here and the impact inflation has on the “time value” of money is that it decreases the value of a dollar over time, where the money available to you today is worth more than the same amount of money at a future date. This is why hiding any extra money under your mattress is the worst thing you can do for it.
How to figure out if you have extra money?
Figuring out how to invest money so it will grow your wealth for you can be a challenge. There’s no shortage of information available, although unfortunately, there are also a lot of opinions that aren’t worth the font point they’re written in. First thought, is to make sure you really do have some extra money. Look ahead to see if there may be a car insurance lump coming up, or any other large surprise bills. Make sure to have enough on hand for tax bills in your savings. Do you have insurance to protect against an unexpected change in money? If you haven’t already, consider investing in disability, critical illness, and liability insurance.
Who should I talk to first?
Your accountant is a great place to start. Now that you’re accumulating excess cash and looking to invest, you want advice on how to manage this growth. Incorporating a holding company may be the right decision for you at this point. With the correct advice, a holding company can help you grow your business empire while providing asset protection, tax savings and many other potential advantages. A holding company is created for the purpose of “holding” various assets
Including real estate, shares in stock, bitcoin, and even other businesses. It doesn’t have active business income, it passively holds assets that generate passive income.
As well, you should set up a meeting with your financial advisor if you have a relationship with one. You can take money out to invest in a tax-free savings account (TFSA), an account available in Canada that provides tax benefits for saving. The annual contribution limit is $6,000 and investments can grow and earn income tax-free, and withdrawals are not taxable. Unused contribution room can be carried forward indefinitely.
Put some of that extra cash towards your Registered Retirement Savings Plan (RRSP), which is designed to help you save for retirement. Contributions are tax-deductible up to the deduction limit found on your most recent Notice of Assessment from CRA. Investments can grow and earn income on a tax-deferred basis, as long as the funds remain in the plan. Tax is payable only when you withdraw funds from your plan. Both a TFSA and an RRSP are great ways for saving money to achieve your financial goals, and both can hold a wide range of investments, including stocks, mutual funds, bonds, GICs, and cash.
What else can I invest in?
Here are some simple ideas to get started:
Buying gold, silver and other precious metals is a great long-term investment. Investing in precious metals provides protection against inflation. Gold is a durable metal that has historically kept its appeal. Investors in the precious metals market go back and forth on silver, so its value is more volatile than gold’s. However, because silver is lower in price, it is easier for the beginning investor to get started.
Cryptocurrency is a digital currency that uses encryption to generate money and to verify transactions. To buy and trade Bitcoin and other Cryptos, you don’t need a lot of money but do need a lot of knowledge. If you want to get cryptocurrency you can mine it, trade goods and services for it, or buy it via brokers and exchanges using dollars and other cryptocurrencies. Learn how to keep track of crypto-gains for tax in Canada.
Check out Helium mining, as it’s super easy to get started. Helium is a blockchain-based cryptocurrency that aims to decentralize wireless infrastructure around the world. When mining Helium, you provide connectivity for a class of Internet of Things (IoT) devices by building wireless coverage thanks to the LongFi technology, in return for which you receive the $HNT cryptocurrency. A Helium Hotspot Miner transfers data from one small device to another through radio waves. Five devices working together creates a network so that data can be transferred from it, and in return, give you HNT tokens as a reward.
How much do I need to start?
You can get started investing with as low as $1000 lump sum or even $50 a month. That’s often enough to start, depending on your strategy. Whatever you do, put a plan together and stick to it. Build over time so as to not overwhelm yourself.
Can I manage investments myself or should I get someone else?
It depends on your knowledge and how much time you have available to learn. Do you have extra time to manage your investments? Do you like it? Can you trust someone else like a money manager or a financial advisor with your money?
There are online tools that can help, as with technology, investment strategies and opportunities have skyrocketed. Check out Wealthsimple, here’s our referral code for a discount. You can also enlist the help of an Exempt Market Dealer (EMD), a licensed securities dealer registered under the legislation. They deal in exempt markets and other securities such as mutual funds. There’s also Atlas One, a digital securities company that provides investors with greater access to private market opportunities utilizing blockchain technology. Or if you’re into real estate, Fundscraper is a Canadian private real estate investment marketplace where you can start investing in real estate with as little as $5000. You can also look into private mortgages (no tenants and toilets), or straight-up buying real estate by yourself or by investing with an operating partner.
When it comes to having extra money in a time of crazy inflation, you are either playing defence or offence. Be offensive and click some of the links in the article to get the ideas flowing. Once you start thinking and talking about it, opportunities seem to appear.