We all know young people who can benefit from the experiences of “someone who’s been there” life lessons that can help them make better decisions. EdgePoint portfolio manager and father of three, Tye Bousada, shares the following advice about money with his children and now you.
A mutual fund is a pool of money that is invested by a professional investment manager on behalf of a large group of people. The profits and losses made from the investments are shared by the whole group.
Understanding mutual fund sales charges
When you buy a mutual fund, you may pay a fee (or commission) to the investment professional. The commission is also known as a sales charge or load. There are two basic types of sales charges, but both are calculated as a percentage of your original purchase amount.
Understanding management expense ratios
When you invest in a mutual fund, you and everyone else invested in it help pay for the administration and expertise to manage that fund. You don’t pay these fees and expenses directly, however they do reduce your overall rate of return. These fees are collected at the fund level and are expressed as a percentage of total fund assets, and this number is known as the management expense ratio (MER).
TFSAs and RRSPs are important savings plans sponsored by the Government of Canada and generally one is not better than the other. They each have their own unique tax advantages and can work together to help maximize your savings.
TFSA key features:
- Unlike Registered Retirement Savings Plans (RRSPs), contributions are not deductible for tax purposes.
- Investments grow tax-free while inside the TFSA.
- Withdrawals can be made at any time for any purpose and are not subject to tax.
- Unused contribution room can be carried forward indefinitely.
- Withdrawals can be re-contributed but not in the same year the withdrawal was made.
- TFSAs can hold many of the same investments as an RRSP
The TFSA or RRSP decision:
- Choose an RRSP when pre-retirement income is expected to be higher than retirement income. Income during retirement may benefit from a lower tax rate.
- Choose either a TFSA or an RRSP when pre-retirement income is anticipated to be equal to retirement income. Income tax rates may be equal before and during retirement, so there is no advantage to one over the other.
- Choose a TFSA when pre-retirement income is expected to be lower than retirement income. Income during retirement may be withdrawn tax-free from a TFSA.
Mutual funds are typically structured in two ways – either as a trust or a corporation. From an investment perspective, both can be managed in the same way, hold identical portfolios and produce similar returns.
The main difference is that a mutual fund trust is generally only one fund, whereas a corporation is one entity that may consist of any number of share classes, each representing a separate fund.
T-Class provides an income solution that creates a predictable tax-efficient cash flow using Corporate Class funds.
By tapping into the unrealized gains in Corporate Class funds, you can create a predictable, monthly income stream and still allow your investments to continue growing at rates that can potentially match, or outstrip the rate of withdrawal. You receive tax-efficient cash flow without sacrificing the potential for growth.
With T-Class you are able to create a regular cash flow from non-conventional income sources, such as equities and balanced portfolios.
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