An individual can have more than one RRSP account, but their personal annual contributions cannot exceed the government stated annual limit for RRSPs. It is also possible to request to have a RRSP account moved from one financial institution to another financial institution.

An RRSP is a tax deferral account, not a tax-free account like your TFSA.

The good news is that dividends, interest and capital gains you earn inside your RRSP are tax-free, while the money stays inside the RRSP.

More good news: when you make a contribution to your RRSP, you will get a tax refund equal to the amount you contributed multiplied by your marginal tax rate. For example, if you contribute $5,000 to your RRSP in 2016, and your marginal tax rate is 30%, you will receive a tax refund of $1,500. You claim your RRSP deduction every year when you file your tax return.

The bad news is that when you take the money out of your RRSP, it will be taxed at your marginal tax rate.

You are limited in the amount of money you can contribute each year. For 2016, the maximum contribution amount is 18% of your earned income, or $25,370, whichever is smaller.

If you have not maxed out your contributions to date, you can top up your RRSP according to your Notice of Assessment, which you get when you file your annual taxes.

The best way to work your RRSP is to contribute when you are making a lot of money and paying a high marginal tax rate, and then withdrawal the money when you are not working and will be at a lower marginal tax rate.

Finally, you are required to close your RRSP by the end of the year you turn 71 and must use the money to buy a Registered Retirement Income Fund (RRIF) or an Annuity.

A non-registered account is like your bank chequing or savings account and can include stock trading accounts.

You will pay tax on the dividends, interest and capital gains (when recognized, i.e., sold), earned in these accounts each year when you file your taxes.

The higher earning spouse can have their own RRSP and also contribute to their spouses’ Spousal RRSP. The higher earning persons annual contribution to their own RRSP and their spouses’ Spousal RRSP cannot exceed the higher earning persons individual annual RRSP limit.

When the higher-earning spouse makes a contribution to their Spousal RRSP, the higher-earning spouse will benefit from the tax deduction, i.e., the higher-earning spouse will get a refund equal to the contribution multiplied by the higher-earning spouse’s marginal tax rate.

By ensuring both RRSPs are about the same size, the couple will pay less tax than if the higher-earning spouse was withdrawing a similar amount of money from a single RRSP account.

So, in a nutshell, spousal RRSPs are a way for couples, (married, common-law or same-sex) to split income, and therefore reduce their tax load in retirement, or if one spouse is unemployed for a long period of time and needs extra funds.

The second thing to watch out for is the attribution rules. If you contribute to a Spousal RRSP in 2016, your spouse will pay a penalty if they withdraw money from their RRSP in 2016, 2017 or 2018.

A family RESP can be opened only by parents or grandparents of the children who will use the money for the education of any child in the family. Importantly, RESP funds can only be used for education: university, college, vocational schools, etc.

The lifetime maximum contribution amount is $50,000 per child. Similar to RRSPs and TFSAs, the money can be invested in ETFs, GICs, stocks, or bonds. The best part of RESPs is that the Canadian government has established the Canada Education Savings Grant (CESG), which will match your contribution to a maximum of 20% of a maximum of $2,500 annually – meaning that you receive $500 free dollars per year to a lifetime maximum of $7,200 free dollars.

Taxes are complicated. Returns, (i.e. capital gains, dividends or interest) grow tax free while sheltered in the RESP. However, when the money is withdrawn for school, tax is due only on the dividends, interest and capital gains, and on the money supplied by the government. There is no tax payable on the money you originally contributed.

The risk with RESPs is that the child will decide not to study after high school. In that situation, the account can be transferred to a sibling. If there is no sibling, you or the person who contributed the money (the subscriber) may transfer it to their personal RRSP, assuming they have contribution room. Or you may simply withdraw the money from the RESP. At that time, any money you contributed to the RESP is returned tax-free. Any funds donated through the CESG would have to be returned and any income earned is taxed at your marginal tax rate.

Since both people have access to the accounts, if one account holder dies, the other will have no problem withdrawing the funds since s/he already has access to the account. Without a joint account, a widow would have to wait for a Will to move through the courts before accessing her/his money.

The primary advantage of having a joint account is also its main disadvantage: Other people have access to your money. When all account holders have equal ownership and rights to the account, any of them have the right to simply withdraw some, or even all, of the money.

You must convert your RRSP to either a RRIF or an Annuity by the end of the year you turn 71. A RRIF is very similar to an RRSP, except that an RRSP is used to accumulate money for retirement, while a RRIF has rules about the minimum amount of money you must withdraw (on which you must pay tax at your marginal tax rate each year during retirement).

For example, when you turn 71, you must withdraw 5.2% of your RRIF. When you turn 81, you must withdraw 7.1%, and the withdrawal rates continue to rise with your age.

Income tax arising from dividends and interest in the Informal Trust account will accrue to your parents.

Income tax arising from capital gains in the informal Trust account will accrue to the child, as long as the Bank has the child’s Social Security Number (SIN).  If the Bank does not have the child’s SIN, then the capital gains tax will also accrue to the parents.

There are two main types of stocks or shares: common and preferred. Common stock or common shares usually entitle you to vote at shareholders' meetings and to receive dividends. 

Voting rights provide you the right, but not the obligation, to vote on company issues, typically once per year at the Annual General Meeting.

Preferred stocks or preferred shares generally do not have voting rights, but entitle you to receive dividends and have a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders, and have priority if a company goes bankrupt and is liquidated (converted into cash value).

Importantly, common share dividends of good companies grow over time, whereas preferred share dividends stay fixed, or can be reset according to the general level of interest rates.

Unlike mutual funds, ETFs:

• Use computer algorithms to calculate stock weightings in the portfolio. This keeps
  costs low and the savings are passed on to you the investor through lower management fees.
• Trade like a common stock on a stock exchange – ETFs experience price changes throughout the day as they are bought and sold.

In general, ETFs are superior to mutual funds because, while they both may track the same indicies (indexes), ETFs do it at a much lower cost.

In general, mutual funds are inferior to ETFs, as mutual funds typically have much higher management fees than ETFs.

A bond is fixed income security that pays regular income in the form of interest to the buyer or security holder. By buying a bond, you loan money to the issuer in return for the issuer's promise to pay you interest and repay your initial investment (or face value) of the bond at a later specified date (when the bond matures).

A bond issued by the Federal Government or a major company like the Royal Bank has limited credit risk. Bonds issued by lower governments, i.e., provincial or municipal governments, or by companies with lower credit ratings, have more credit risk, and therefore pay higher interest.

Bond prices fluctuate with interest rates. When interest rates go up, bond prices go down and vice versa. Bond interest rates are currently at historical lows. A typical Triple A (the safest) two-year bond currently pays 0.6%, and a 10-year bond pays 1.3%. These low returns will not help you grow your money when you are young – by the time they mature, inflation will have eaten up their meagre returns, whereas the equity markets have historically grown much faster over the long term.

However, if you are within five years of needing your money back, fixed income including bonds should comprise 20–50% of your portfolio, as they offer important diversification and stability. The cool thing about bonds is that, when the stock market drops because the economy is slowing, bond prices typically rise, as Central Banks push interest rates down to try to stimulate the economy.

To sum up: You don't need bonds if your investment horizon is 10, 20 or 30 years. You do need bonds if you will need your money within five years.

A Guaranteed Investment Certificate (GIC) is a Canadian investment that offers a guaranteed rate of return over a fixed period of time. GICs are most commonly issued by trust companies or banks. Due to its low risk profile, the return on a GIC is generally less than on other investments such as stocks and bonds.

GICs can have special characteristics, like cashable or market-linked bonus returns, but this razzle dazzle does not increase the appeal of GICs for long-term investing.

To illustrate this, let's look at an example. Today's rates for one- and five-year GICs are currently 1.75% and 2.3 % respectively. If you were to invest your hard earned $2,000 in a GIC at 2%, it would take 36 years for your money to double!

Preferred shares are stocks that generally do not have voting rights, but entitle you to receive dividends and have a higher claim on assets and earnings than common shares. For example, owners of preferred stock receive dividends before common shareholders, and have priority if a company goes bankrupt and is liquidated (converted into cash value).

Importantly, preferred share dividends tend to stay relatively fixed, because they are tied to the general level of interest rates in the economy, which don’t change often.

The annuity holder is taxed only when funds are withdrawn from the account. All annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal.

An annuity cannot be withdrawn without penalty until a certain specified age. Fixed annuities guarantee a certain payment amount, while variable annuities do not, but do have the potential for greater returns.

There is a lot to know before you buy an annuity. Get at least three quotes from different insurance companies or brokers before making this purchase.

In effect, it is interest on the interest. It is the interest on the interest that makes your investment grow exponentially the longer you leave it alone.

This Greatest Discovery explains how one single investment of $10,000, earning 10% per year, grows to $67,000 in 20 years, $175,000 in 30 years, $450,000 in 40 years and $1,175,000 in 50 years!!!

Wowsa, Einstein was right!

You are young - get on board. Now think about combining the advantages of dividends with the potential of compounding and you begin to see why people say it takes money to make money. You can be one of those people.

Holders of preferred stock receive their dividends at a fixed rate and are paid first.

Since dividends are paid out of a company’s after-tax income, when you receive the dividend, you will benefit from the Dividend Tax Credit, which effectively reduces the tax you have to pay on your dividends.

This is huge!!! In Canada, the first $50,000 of eligible dividends (i.e., from publicly-traded corporations, that is, ones listed on a stock exchange) that you collect in your non-registered accounts are tax-free (assuming you have no other income, i.e., when you are not working). This tax benefit is in addition to the tax-free dividends and capital gains you earn in your TFSA, and the tax deferral available in RRSPs and RRIFs.

Capital gains in your TFSA are always completely tax-free, both when the money is in your TFSA and when you take it out!! Capital gains in your non-registered accounts (i.e., not in your RRSP, RESP or RRIF) only occur after you sell an investment. Capital gains taxes are quite favorable compared to taxes on interest income or employment income.

Capital gains in your RRSP and RRIF are tax-free while the money remains in these accounts. However, once you start taking money out of your RRSP or RRIF, 100% of the money withdrawn is taxed as regular income, i.e., you don't get favorable capital gains tax treatment on those gains.

How many years do you have left to invest?

1. How old are you now?
2. How old do you think you will be when you die?

Now subtract one answer from the other. That is how many years you have left to invest!

Now that’s a lot longer than 10, 20 and probably even 30 or 40 years. You have time to make investing work for you as long as you get started!

As you make more money, your tax rate increases and, as a result, you keep less of each dollar you earn. Your marginal tax rate is the amount of tax you would pay on your next dollar of income. For example, in Ontario, you will pay $11,686 in tax if your employer paid you $60,000. Your average tax rate is 19.5% ($11,686 divided by $60,000) and your marginal tax rate is 31.2%. If you earned one additional dollar, the government would take 31 cents of that dollar. Ouch.

If you earned $60,000 in dividends in Ontario, you would pay just $951 in tax. Your average tax rate is only 1.6% ($951 divided by $60,000) and your marginal tax rate is 35.4%.

Potential investors, customers, employees and business partners rely upon the data and objective analysis of credit rating agencies in determining the overall strength and stability of a company.

An excellent credit rating is Triple A. Only a handful of governments and companies in the world have this rating. Any rating above BBB is considered investment-grade. In general, don’t buy any bonds from a company that is not at least rated BBB or better.

Also remember that credit rating agencies can get it totally wrong, as they did during the subprime mortgage financial crisis, with their very high ratings of mortgage-backed securities that exploded when people couldn’t pay mortgage payments on mortgages they never should have been given. So that means even investments with high credit ratings still carry risk.

Dividend Tax Credit

A dividend tax credit is the amount you can apply against your tax owing on the grossed-up portion of dividends you received from Canadian corporations. (The dividends you receive from Canadian corporations are "grossed up" by 25%. This amount is then included on your income tax form as taxable income. Both Canadian federal and provincial governments then grant you a tax credit, equal to a percentage of the grossed-up amount. This helps to reduce your actual tax payable.)

Source: http://www.investopedia.com/terms/d/dividendtaxcredit.asp

When you stop and consider that you will live possibly 80 or 90 years, you can see that inflation protection is a major consideration of long-term investing.

From an investment perspective, the best defence against inflation is owning stocks of companies that grow their dividends faster than the rate of inflation.