By Andrea Walters, Disability Planning Helpline Advisor, Plan Institute.
As a parent of a loved one with a disability, I understand that talking about investing can feel stressful. Many of us began this year with financial concerns. With COVID-19, our financial challenges appear even greater. Investing in a pandemic may seem like an uncertain time to act. Sometimes, the best way to move from stress to action is to break down a problem into small, bite-sized pieces. Here are four questions to help kick-start your thinking.
Why is investing important?
Investing is often portrayed as something complicated—an activity performed by banks or stockbrokers. In reality, it’s about setting aside money for our future needs. Our priorities and current situation will not always look the same. As we age, we may be unable to work as much. We may require more money to care for our health, or our loved ones. One suggestion is to view investing as something to revisit regularly, throughout your life.
How can I invest when I might need access to my money?
In a pandemic, some of us rely on emergency funds more than ever. We may believe investing is a barrier to quick access to ‘cash’. One solution is to separate your short-term needs AND those of the future. You can plan for both needs at the same time. To illustrate, a short-term need is an emergency fund to cover unexpected bills. Saving for school or replacement of your wheelchair are mid-term needs. For the long-term, a nest egg for retirement is usually top of mind.
How would I start?
Sometimes the hardest part of investing is to take the first step. Whether your goal is to build an emergency fund, save for school or generate retirement income, the best idea is to make a plan. A plan will keep you on track. Consider using an online tool like the Government of Canada’s investment goals worksheet. This worksheet helps you identify short, mid, and long-term savings goals—the perfect place to start!
What options could work for someone with a limited income?
The Tax Free Savings Account (TFSA) enables people age 18 or older to set aside money, tax-free. The contribution limit for 2020 is $6,000. There is no deadline to contribute, and you can carry forward any past years of contribution entitlements. To know your contribution limit,. An important note is that provinces and territories consider money held in a TFSA differently. In BC, for example, funds in a TFSA count towards your allowable asset limit of $100,000 if you receive provincial disability supports. It’s important to check your provincial or territorial regulation around this, as you want to make sure saving for a rainy day doesn’t negatively impact any provincial supports you may be receiving. To learn more about TFSAs, it is best to speak with a financial advisor..
The Registered Disability Savings Plan (RDSP) is an excellent, long-term investment opportunity for people with a disability. Even a small investment on your part will attract a government grant contribution. And if you’re unable to contribute, depending on income level, there is a government bond that can be received without any personal contribution. The RDSP also allows you to carry forward any unclaimed grant entitlements for up to ten years. Visit www.rdsp.com for eligibility requirements and how to open one.
If you already have an RDSP, one tip is to make sure you have applied for all eligible government grants. Contact Employment and Social Development Canada (ESDC) to determine any current or unclaimed grants to which you are entitled.
The TFSA and RDSP are products that can each hold multiple types of investments. No matter which option you choose, a sound approach is to diversify your portfolio. When you spread out your investments, you limit your exposure to any one type of asset. For more information on your options, it is wise to seek guidance from a financial advisor. Plan Institute’s Step-by-Step Guide can help you prepare for that conversation.
Congratulations! You just took that first, small step to look at investing! We hope you feel empowered to begin a strategy that is right for you.
For those of you who may already be comfortable with the basics of investing or currently have investments, here are some tips to remember when facing market uncertainty or volatility.
- First, avoid rash or sudden decision making. If you take money out of investments, such as those in long-term plans like the RDSP, you will likely incur penalties. Weigh all the options available to you before you make any withdrawals.
- Examine the impact on your long-term goals. When you assess options outside of the TFSA and RDSP, determine what level of risk you can tolerate. For example, stocks come with higher volatility. Higher volatility might offer a chance of greater returns, but could also result in risk to your initial investment. As always, be aware of returns that appear to be ‘too good to be true’ or scams.
- To become better informed, shop around, ask friends and family and always seek professional advice.
For more information on the RDSP or other disability planning guidance, contact Plan Institute at 1-844-311-7526. Our family experts are here to help!
Investment Information Source: Connor Velikonja, Client Associate, Velikonja Financial / CIBC Woody Gundy.