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Ways to Invest Small Amounts of Money

Thursday, 23 July 2020

Whether you’ve been carefully budgeting to save more, or the current circumstances have just led to greater savings, it’s a great feeling to have extra money and you might be wondering what’s best to do with it. Finding extra cash in your budget is a great opportunity to invest! You may feel that the amount you have is too small, but even small amounts can grow if you are strategic in your financial goals. Today we will discuss how to invest your money and share small investment ideas that will make your money work for you!

How to Invest Your Money: Do Your Research

Before you invest your money, do your research and assess your financial goals and risk tolerance. One of BIG’s trusted financial advisors can provide a professional advice to help determine your goals, evaluate your risk tolerance, and suggest the best investments for your financial position. While you are researching which small investment ideas are best for you, keep the extra savings out of sight so that you don’t spend it unnecessarily.

Do You Have Stable Employment?

If your employment is unstable, you may benefit from keeping the extra money accessible in case of financial emergency (unemployment, repairs, etc.) rather than investing it. The extra money should be kept in a High Interest Savings Account (HISA) so that you still have access to it while also making interest. The cash available during uncertain financial situations will provide you better flexibility.

Do You Have Outstanding Debt?

Put extra cash towards high-interest debt (credit card) before investing. With credit card interest rates at 20%, the money you pay in interest would outweigh the gains you would make in investments ranging from 2%-8%. With low-interest debt, if you can afford regular payments, compare the interest rate to the potential return on investment (ROI). It may still be in your best interest to put the money towards the debt.

Small Investment Ideas

With debt-repayment and employment under control, let’s talk about how to invest your money! For more information about finding the right time to invest, check out this blog. Below are some pointers to remember for using your extra cash for these small investment ideas:

Focus on Your Existing Goals

If you already have existing financial goals and investments, you should focus on those goals and contribute the money towards them, especially if they are short-term (ie. saving for a house down-payment, or a vacation). If you already have investments, consider diversifying your portfolio to maintain a strong financial position, even through market volatility.  

Start a New Investment

If you are starting out with new investments, make sure you are aware of minimum contributions that may be required. We have listed some small investment ideas below, but a financial adviser can bring knowledge and experience to the conversation to help you determine which options are best for you.

How to Invest Your Money in a TFSA

One of the small investment ideas is a Tax-Free Savings Account (TFSA). A TFSA is a savings account where you can set money aside in eligible investments. You do not have to pay tax on income you gain from dividends, interest and capital gains. You can also withdraw money at any point tax-free. It does not have a minimum contribution amount, so you can start with whatever small amount you have. There is, however, a contribution limit. A financial adviser would be able to help you calculate how much room you have to invest in your TFSA and provide you with information on the best places to invest it.

How to Invest Your Money in an RRSP

If all your short-term goals are already sufficiently funded, it’s a great time to look to the future and consider a Registered Retirement Savings Plan (RRSP).

An RRSP is a savings plan for your retirement to which you and your spouse/common-law partner may contribute. Any contributions made can be used to reduce your taxes each year. While your money remains in the savings plan, it is exempt from taxes. You will have to pay tax on any amount withdrawn, or when you retire and receive regular payments. There is no minimum contribution requirement for RRSPs, but there is an annual limit.

Other Small Investment Ideas

Depending on your risk tolerance, these other small investment ideas may work for you when deciding how to invest your money. Some of these investments can be researched and managed on your own, however, they’re best managed by a financial adviser whose experience and knowledge gives them better insight into finance.

Guaranteed Investment Certificate (GIC)

A Guaranteed Investment Certificate is a low-risk investment that protects your invested capital, so you don’t need to worry about fluctuation in the markets. The ‘guarantee’ is that – as long as your money remains invested – you are guaranteed a specific amount of interest on your contribution. GICs can have either a fixed or a variable interest rate and it must be invested for a set term (6 months, 1 year, 2 years, etc.). A minimum of $500 is required to start a GIC.

Exchange Traded Fund (ETF)

An exchange traded fund holds assets (stocks, commodities or bonds) as an investment fund. They are traded on stock exchanges causing their value to fluctuate daily. The risk level of an exchange traded fund depends on its assets. An ETF containing high-risk assets will have a high-risk level, and the converse is also true. You can select ETFs at varying risk levels based on your risk tolerance. The minimum you must pay to buy an ETF is the price of one share. There may also be additional administrative or commission fees.

Segregated Funds

A pooled investment fund is set up by an insurance company and segregated from the general capital of the company. The main difference between a segregated fund and a mutual fund is the guarantee that, regardless of fund performance, a minimum percentage (75% or 100%) of the investor’s contributions will be returned at the time of maturity or upon death. Segregated funds may also provide potential creditor protection in the event of lawsuit or bankruptcy and can be used to bypasses estate and probate fees.

Stocks & Bonds

A stock is a unit of ownership in a company which is purchased and sold on a stock exchange. They can also be called “shares” or “equities”. A bond is a certificate you receive for a loan you make to a company or government (an issuer). In return, the issuer of the bond promises to pay you interest at a set rate and to repay the loan on a set date. Both stocks and bonds require much more time and research to buy and trade in the markets.

Are You Ready?

We are excited to get you started in on this new journey to becoming more financially secure and seeing great gains from your investments. After you’ve considered these small investment ideas of how to investment your money, we recommend contacting our Financial team to further discuss your situation and the many options available to you.

By: Amy Legault