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Managing your investments according to your age

DFSIN - Adpating to your changing needs

It is a fact: managing your investments is primarily a matter of risk tolerance. The factors affecting risk also change as we go through the various stages of life.

Investment strategies and actions will vary, depending on whether you are 20, 30, 40, 50 or over 60. The following advice will help you manage your money, whatever your age.

In your 20s

  • You are starting your career. Now is the time to begin investing in a tax-sheltered RRSP. You can make monthly contributions in the form of automatic withdrawals, and you are allowed to contribute up to 18% of your income, with a maximum of $22,000 for 2010.

  • You can also take advantage of the relatively new Tax-Free Savings Account (TFSA) in which you may deposit $5,000 a year. When your income puts you in a higher tax bracket, you can transfer the amount of your TFSA into an RRSP

  • If you are planning to buy a house and would like to use the Home Buyers Plan (HBP), choose RRSP investments that can be converted easily to cash when you need it.

In your 30s and 40s

  • In your 30s, you tend to have more financial obligations: you buy a home and a car, and you start planning for a family. This is a critical time when you have to learn how to manage your needs and live within your means. You might have decisions to make, such as whether or not to contribute to your RRSP for a certain period of time. You should also consider a TFSA as part of your financial plan.

  • It is not too early to make a will, even in your 30’s. If you die, your RRSP could be transferred to your spouse with no tax impact.

  • Your 40s are the time to maximize your RRSP contributions. If you still have money left, take advantage of a TFSA.

In your 50s

  • After 50, you should begin converting your growth portfolio to an income portfolio, to ensure adequate retirement income. Switch gradually from stocks to lower-risk investments, such as bonds or other fixed-income securities. You might also want to consider such products as guaranteed investment funds (segregated funds), which offer guaranteed retirement income options designed specifically for retired people and those approaching retirement

  • Some people, who have accumulated a certain amount of wealth and are just a year or two away from retirement, choose to arrange for supplemental retirement income, while maintaining their interests in the stock market. How? By converting their retirement assets into additional retirement income. This means switching from accumulation instruments (RRSP) to payout instruments (RRIF, annuities, etc.). Payments from your income replacement portfolio are made at whatever frequency suits you best.

For more information about payout instruments, speak to your financial services professional.