Many investors typically have two questions with respect to the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Accounts (TFSA): which one should I invest in for retirement; and which types of stocks should I invest in for each investment vehicle?
To start, each investment vehicle will have different allowances for investors to use, depending on how much one has earned over the years. An RRSP allowance will differ as a percentage of income rolled over year after year, to a total amount available to invest which will increase over time. The TFSA program allows for different amounts to be invested each year on a tax-free basis, however the amounts are determined by the Federal government in power and change each year. As of March 2017, the maximum allowable investment in a TFSA amounts to $52,000 for an account open since inception.
In general, most investment advisors suggest that investors choose the type of investment to put into each vehicle depending on one’s time horizon and goals. With an RRSP geared more toward retirement and a TFSA largely viewed as a flexible investment vehicle for savings and other activities, typically RRSP portfolios have a higher percentage of income-focused investments compared to TFSA portfolios which tend to be more focused on growth-focused investments.
Time horizon and reason for investing are important to consider for any investment in any investment vehicle; individual investors should consult an investment advisor before making any decisions.
