14 - Why should I invest?

Question 1

What is the difference between saving and investing?

Answer 1

Saving is putting aside a portion of income.

Investing is making that portion grow through interest and appreciation.

Question 2

What is compounding and how is it related to the law of 72?

Answer 2

Compounding is interest earned on interest. The rule of 72 gives a way of calculating how soon an investment will double with compounding.

Question 3

What are the two ways to invest and save tax?

Answer 3

1. Deposits to registered plans

2. Investing in preferred tax-treated vehicles (dividends/capital gains).

Question 4

What are the rules for RESPs?

Answer 4

$50,000 - Maximum contributable per child

Question 5

What are the rules for the Canada Education Savings Grant (CESG)?

Answer 5

20% - max per year of $500/lifetime max $7,200 CESG
Additional 20% of contributions income up to $40,970
Additional 10% of contributions (income btwn $40,970 and $81,941)

Question 6

What are the rules for the Canada Learning Bond?

Answer 6

Provides $500 + $25 towards cost of opening RESP

$100 per year for 15 years to children who receive the National Child Benefit Supplement.

Question 7

What is a Registered Disability Savings Plan?

Answer 7

Must be eligible for the Disability Tax Credit (i.e. severly disabled)
Contributions not tax-deductible
No annual contribution limit
Lifetime limit $200,000
Contributions can be made until 59 of the disabled. Withdrawals must begin at 60

Question 8

How does a tax-free savings account function?

Answer 8

Contribute after-tax dollars
$5,500 annual limit
Funds received tax-free upon withdrawal