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HomePersonal BankingWealth ManagementSmall BusinessCommercialCorporate & InstitutionalAbout BMO

Investment Planning

Start Early

The earlier you start, the more time your investments earn reap the benefits of compounding.

Early contributions allow more time for the income earned by your investments to compound. You may also find that you can make a smaller total investment and still be further ahead.

This chart shows the opportunity you gain by starting early.

Have a Plan

How much will you need? When will you need it? How much risk? First, you have to have a plan.

How much? When? And how much risk?
Step one in investing is to figure out how much money you‘ll need, and when you will need it. Once you have these two essential decisions in place, you need to determine how much investment risk you’re prepared to accept.

Every investment is different. Every investor is different.
Before you invest, think about your personal objectives. Why are you investing? Planning your retirement? Saving for a down payment on a house? Whatever your objectives, your plan should be developed specifically to help meet them.

Your goals will also help establish the time frame in which you hope to achieve your investment objectives.

Another aspect to consider is the amount of risk you are willing to assume. If you know your level of risk tolerance, and invest accordingly, you’re less likely to worry when markets fluctuate.

Once you have a plan established, the key is to maintain it
Stay focused on your goals and realistic about your investment horizon. When you have a plan, there’s peace of mind in knowing that it’s designed specifically for you and your goals.

If you don’t have an investment plan, now may be the perfect time to create one. Or if your needs or goals have changed, perhaps it's time to re-evaluate the investments you have.

Invest Often

Compounding lets smaller monthly contributions grow faster than yearly lump sums.

Why wait a year for your money to start earning income?
It's usually easier to make smaller, regular contributions than larger ones once a year or every few years, and it can be financially beneficial.

Benefits of Saving Regularly

Compound growth.
There are two ways your money can grow: from your own regular contributions and from the accumulated growth of your earlier savings. Best of all, the growth is tax-free if your savings are inside an RSP or RESP.

Convenient and manageable.
A Continuous Savings Plan (CSP) provides you with the convenience of making small, regular contributions to help increase your savings or ease the cost of investing one big lump sum each year.

Dollar-cost averaging.
A consistent monthly contribution helps to reduce the average price you pay per unit over the long term for your investments.

Pay less tax during the year.
By making regular RSP contributions and notifying Canada Revenue Agency, you can pay less tax throughout the year instead of waiting for a tax refund. Pick up a tax deduction waiver to notify your employer to deduct less income tax from each pay cheque. This form is available on the Canada Revenue Agency website.

Stay Invested

Investors with a buy-and-hold strategy generally come out further ahead.

By holding on to your investments for the long term – five years or more – you can benefit from generally higher long term interest rates, long term market trends and growth.

Markets and interest rates are always moving in one direction or another. This day-to-day market volatility is normal, and generally should not be used to make buying and selling decisions. In most cases, it is better to stay invested for the long term. Otherwise you risk incorrectly forecasting interest rate movements and not being invested during market highs, which can have a significant impact on the return on your investment.

Managing Risk

Learn more about effective ways of managing risk.

  • Contrary to what you may have heard, it's very difficult to manage risk effectively by simply selecting the "right" stocks, or timing the markets.
  • One of the best ways to manage risk in a portfolio is through asset allocation - a process of arranging your investments among different asset classes, such as stocks, bonds, money market investments and cash.
  • A portfolio that includes a diversity of asset classes can have the potential for higher returns. It also helps reduce risk because, if one asset class underperforms, losses can be made up in another class. So even if a single asset class underperforms, your portfolio doesn't have to.

Equity markets: return and risk
Does volatility in equity markets give you the jitters? You're not alone. But you may be surprised to learn that the stock market has historically been the best-performing long-term investment vehicle .

  • Stocks can be a volatile asset class over a short-term duration. Historically, over the long term, the chances of a negative return declines. Equities fluctuate, sometimes wildly, but as history demonstrates, their value shows a consistent upward trend over the long term
  • For example, at the end of 1987 the TSX Composite Index fell by about 25%. In just over one year, however, this loss was fully recovered. In the same period, the Dow Jones Industrial Average fell 36%, but since then it has quadrupled in size. (Source: BMO Mutual Funds).


Diversify your portfolio with a range of investments.

You've heard the phrase, "don't put all your eggs in one basket".
That's the basic idea behind investment diversification and asset allocation. Diversification – spreading assets across a variety of different investments – is perhaps the single most important rule you can follow when investing, since it helps reduce your overall risk. You can diversify by asset category, industry, sector or geographic region to help create the foundation for a well-balanced portfolio.

Combining a variety of investments
That are unlikely to move in the same direction at the same time helps reduce the risk associated with mutual fund investing as each one responds differently to changes in the marketplace. If you have a variety of investments, a decline in one may be counterbalanced by those that remain stable or rise. You can also consider investing in principal protected products as another way to manage investment risk.

Developing a balanced portfolio also involve asset allocation
A key concept in financial planning, asset allocation involves investing proportionately among different kinds of assets, such as stocks, bonds, money market investments and cash. The percentage of your investment dollar placed in each category depends on your tolerance for risk, time horizon and your expectations for returns.

International Diversification

Diversification through international investments can help you manage risk.

Investing internationally can help you manage risk through greater diversification. And it may provide you with opportunities for growth, enhancing your portfolio's long-term return potential.

Why diversify internationally?

  • Canada represents less than 4% of total global equity markets [1] . There's plenty of opportunity for diversification and growth beyond Canada's borders.
  • Historically, international markets have not moved in tandem with the Canadian market. So when the Canadian market is in a downturn, investments from other parts of the world may be on their way up
  • With international diversification, you have the opportunity to gain greater growth potential while possibly reducing risk

How to access international markets
One of the best ways to invest internationally is through mutual funds that invest in international securities. Mutual funds offer a degree of diversification that few people can hope to replicate on their own. And professional portfolio managers have the experience and resources required to effectively navigate international markets

Term investment products also provide access to international markets through products like international or global Index-linked GICs. GICs offer the combined benefit of principal protection and enhanced return potential when held until maturity.

Maximize Your RSP

Does it make sense to borrow to increase your RSP contribution?

The benefits of contributing to an RSP

  • Reduces your taxes owing
  • Potentially increases your tax refund
  • Allows tax deferred growth for retirement savings

Does it make sense to borrow to increase your contribution?

Borrowing to make an RSP contribution
If you don’t have enough money to maximize your RSP contribution room, one option is to take out a loan towards your RSP. There are several benefits to borrowing money to contribute, such as lowering your taxes owing and generating a possible tax refund.

When to borrow for your RSP
When deciding whether to borrow to contribute to an RSP, consider how big of a tax reduction you will receive, and how quickly you can afford to repay the loan. Borrowing to make all or part of your RSP contribution can make sense when the return on your RSP outweighs the interest cost of borrowing, or if you’re eligible for a tax refund. Consider borrowing for your RSP if you want to increase your RSP contribution. Contributing is a sure way to reduce your taxable income today, while providing for your retirement.

More information about borrowing to maximize your RSP contribution.

Strategies for Any Age

Strategic financial planning tips for life stages 20 to 60.

20's – Getting Started

At this life stage, you may be:

  • Starting an investment plan
  • Setting up an RSP
  • Starting your first full-time job
  • Starting a family
  • Considering buying a car or first home
  • Paying off school loans

Strategies to consider:

  • Develop an annual savings strategy and set investment goals
  • Develop a strategy for managing and paying down your debt
  • Invest early so that money has more time to grow (the money in an RSP grows tax-free)
  • Invest regularly through a Continuous Savings Plan (CSP) and benefit from dollar-cost averaging, compounding, and cash flow control
  • If you are considering purchasing your first home, you can withdraw money from your RSP to use towards the purchase of your home under the Home Buyers’ Plan
  • Consider low risk or principal protected investments if saving for significant purchases like your first home

30's – Juggling priorities

At this life stage, you may be:

  • Raising a family
  • Paying down a mortgage
  • Thinking of purchasing a second car or property
  • Considering home renovations

Strategies to consider:

  • Revisit and update your overall financial plan
  • Contribute regularly - even $50 a month can make a difference
  • Invest earlier so your money has more time to grow (the money in an RSP grows tax-free)
  • Remember there are tax advantages to investing in an RSP. Each dollar contributed to an RSP (up to your contribution limit) is deductible from your taxable income
  • If you are paying down a mortgage, contribute to your RSP and then use the tax refund to pay down the mortgage
  • Create a nest egg for your children’s post-secondary education – invest in an RESP. Under certain conditions, the tax-deferred growth can be transferred to your RSP if your child does not go to school (depending on availability of RSP contribution room)

If you are changing jobs:

  • You may have a pension with your old company and the choice of whether to leave it with the company or move it to a locked-in plan
  • By moving it to a locked-in RSP, you will have control over your investment options
  • You may also receive a pension adjustment reversal, which will restore previously used contribution room for your RSP

40's – Peak earning years

At this life stage, you may be:

  • Thinking more about your retirement
  • Paying down your debt
  • Creating more disposable income as your mortgage is paid off
  • Planning for children’s future education expenses

Strategies to consider:

  • Revise and update your overall financial plan
  • Use up all of your annual RSP contribution room
  • Use up any carry-forward RSP contribution room you may have available. You can borrow to do this – and if you receive a tax refund, you can use it to pay down the loan
  • Consider a spousal RSP which provides the opportunity for future income splitting in retirement. This is an important tax planning strategy if one partner expects to have a higher income in retirement than the other
  • If you have used up your RSP contribution room, consider investing outside of your RSP in tax-efficient investments
  • Consider the benefits of leveraged investing – an investment loan has several advantages such as tax deductible interest payments which can reduce the real, after-tax cost of the loan
  • If you are self-employed...
    • Consider claiming income to create RSP contribution room
    • Remember, it’s important to fund your own retirement plan since you likely do not have a company pension plan to rely on
    • Include a plan to save for your child’s post-secondary education

50's – Focusing in

At this life stage, you may be:

  • Shifting from a long-term to a mid-term focus
  • Strengthening your retirement savings
  • Considering early retirement or working less
  • Considering starting your own business
  • Planning extended travel and vacation time

Strategies to consider:

  • Use up any carry-forward RSP contribution room
  • Review and update your overall financial plan:
    • Ensure you’re on target to reach your financial savings goals
    • Generally, 60% to 80% of your current gross income is ideal for maintaining the same level of comfort during retirement
  • Do a retirement budget to help determine what you still need to save to meet your goals (remember to include all sources of retirement income, such as pensions, CPP, etc.)
  • Ask yourself questions to help you plan. What does retirement mean to you? Do you plan to start your own business? Do you want to travel?
  • Assess if there have been any changes to your risk profile and rebalance your portfolio with your financial planner where necessary
  • Tax-efficient investing remains key, particularly when you have no contribution room available
  • Start thinking about when you want to start drawing down on your government benefits (e.g. CPP). In some cases, it’s advantageous to take a reduced benefit early and let your RSP continue to grow tax deferred until you have to convert it at age 71
  • If you retire early and want to go to school, you can use money from your RSP to fund your education through the Federal Government's Lifelong Learning Plan

60's+ – Retirement

At this life stage, you may be:

  • Thinking about retiring early
  • Approaching your company's age for retirement
  • Planning a transition from full-time employment such as:
    • Part-time employment
    • Self-employment/starting a business
    • Extended travel
    • Returning to school

Strategies to consider:

  • Review and update your overall financial plan
  • Refine your retirement income plan to fit your anticipated cash flow needs. Review and adjust your retirement budget
  • Ensure your retirement plan meets the requirements of maturing your RSPs before the end of the year you turn age 71.
  • Consider a reverse mortgage such as a Canadian Home Income Plan (CHIP) if you have built up substantial equity in your home to supplement your income
  • Help your grandchildren save for their post-secondary education by contributing to their Registered Education Savings Plan
  • Review and update your estate plans including your power of attorney and beneficiaries
  • Don't forget that minimizing taxes on retirement income is important

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