Rounding it up
Precious metals have always been linked with wealth, power, and status throughout history.
Some, like gold, serve practical roles, such as in electronics manufacturing.
Gold, silver, platinum, and others are said to hold up well against inflation.
Scammers often prey on older adults and newcomers in this market.
Buying Precious Metals: Is It a Good Investment?
Throughout human history, folks have been trading goods and services, passing around treasures like gold and silver across vast distances. These age-old symbols of wealth still catch the eye of investors today, although some economists and shoppers alike have reservations about diving into the world of precious metals.
But hey, there are some solid reasons to consider snagging yourself some precious metals, gemstones, or coins. Lately, people all over Canada and the US have been snapping up more precious metals than usual. So, are these shiny commodities truly worth investing in? Before you splash out your cash, here’s the lowdown on what you need to know about this market.
Canadians and Americans are on a spending spree
Right now, folks in North America are showing a serious interest in precious metals. According to data from Trading Economics, Canadian imports of “pearls, precious stones, metals, [and] coins” shot up to over $17 billion in 2020, compared to just above $10 billion in 2019. And the same trend is happening in the United States.
USA Today analyzed the situation and found that American imports of gold, silver, and other precious metals soared during a time when imports in many other sectors were dropping. They reported that the value of precious metals flowing into the US hit a 19-year high in 2020.
During the financial chaos of the COVID-19 pandemic, consumers across Canada and the United States turned to precious metals, especially gold, as a safe haven. It’s a common practice to stock up on these shiny assets during times of economic uncertainty because they’ve historically held their value. People believe they’ll always be worth something, making them a smart hedge against financial collapse.
But here’s the thing: surging imports don’t automatically mean it’s a wise investment. This is especially true during a global pandemic that’s completely disrupted trade and consumer behavior. In other words, just because a lot of precious metals were imported recently doesn’t necessarily make them a good investment.
Why Buy Gold?
When it comes to investing in precious metals, there are plenty of options out there, but there’s one heavyweight champion that stands above the rest: gold. Whether it’s adorning Olympic champions or symbolizing regal status, humans have always held gold up as a symbol of wealth, power, and boundless prosperity. While gold might not be the priciest precious metal on the block, it’s certainly the most familiar and traded.
But gold isn’t just shiny—it’s got some practical perks too. Its excellent conductivity makes it invaluable in building electronic gadgets. With its blend of practicality, popularity, and historical prestige, it’s no wonder so many folks are drawn to investing in gold.
People buy gold for all sorts of reasons and in varying amounts. Big-time Wall Street players might dive into gold as a long-term investment strategy, while regular households might stash away gold bullion for retirement or to pass down to loved ones. Companies might snag gold for delicate manufacturing processes, and believe it or not, some high-end restaurants even serve up edible gold treats to their patrons.
Pinpointing exactly how many folks worldwide own gold is tricky, but surveys give us a glimpse. One survey of 1,500 Americans found that roughly 10 percent own some gold, while 11 percent have a bit of silver. For many everyday folks, gold serves as a safety net during economic uncertainty, offering more stability than the rollercoaster ride of stocks. And then there are those who simply own or inherit gold or silver in the form of jewelry, silverware, or artwork.
Be Aware of Scams
When you’re in the market for gold, silver, or any precious metal, it’s crucial to keep an eye out for scams. If you buy from dodgy suppliers or sketchy online sources, you could wind up with fake goods worth zilch. Or worse, you might invest in something you’re told will skyrocket in value, only to find out it’s worthless and you’ve been duped.
According to the AARP, older folks are often targeted in precious metal scams, especially when it comes to gold. Scammers jack up prices, counting on gold’s reputation for being super valuable to swipe cash from unsuspecting investors. If you’re new to the game, it’s vital to do your homework before diving in headfirst, especially if you’re thinking about investing in gold bullion or any precious metal.
Keep your guard up against sales pitches that predict economic doomsday. Many gold scams kick off by stirring up panic and fear, convincing regular folks to invest in gold as a safe bet during tough times. Anyone hyping up the imminent collapse of the stock market or other shaky assets might just be trying to steer you toward gold for their own gain.
Protection From Inflation
Every day folks who put their money into gold and other precious metals often worry about inflation. While the worth of the US Dollar and other investments can swing with political twists and turns, gold and its shiny kin are seen as holding steadier, less prone to sudden shifts. Still, gold and other precious assets aren’t totally immune to change; they can get rattled by market jolts, just not as easily as some other investments.
Gold might not guarantee early retirement, but it’s likely to stay a reliable store of value for the foreseeable future. For those worried about broader financial issues, precious metals can offer a sense of security that’s not as finicky as some other investments prone to sudden losses. And hey, you don’t have to put all your eggs in one basket—consider balancing out stable gold with a more volatile option like silver or platinum, whose prices can jump around more.
To hedge against inflation, many folks opt for physical precious metals—actual gold bars or silver coins you can hold in your hand. But if you’d rather not handle the metal yourself, there are other avenues to explore. A precious metal mutual fund allows you to invest in gold, silver, platinum, and other rare metals without worrying about selling off your grandma’s pearls or your favorite necklace.
Now, investing like a pro is a skill anyone can learn, but if you’re new to the game, approach precious metal funds with caution. Exchange-traded funds (ETFs) make it easy to buy and sell through a brokerage, without the hassle of finding a buyer for your physical gold or metal. If you’ve been dealing in gold bars but haven’t dipped your toe into brokerage trading, some research or a chat with a financial advisor beforehand could be a smart move.
Should You Invest in Precious Metals?
Ultimately, it’s up to you to decide if a financial investment is the right move. While many folks find gold investments to be pretty stable, others might not fancy the idea of owning bullion. For those folks, exchange-traded funds or gold options trading could be more appealing than storing physical coins, bars, or jewels.
Don’t forget about the costs of storing and shipping hefty precious metals—those expenses can add up, especially if you didn’t plan for them from the get-go. Getting your precious metals certified for purity can also ensure you get a decent return if you decide to sell down the road. But remember, if the financial system goes belly-up, a certificate of authenticity might not mean much.
It’s crucial to stay sharp on common scams and understand how emotions can influence our investment decisions when it comes to precious metals and rare stones. Precious metals often get hyped up as being super resilient during financial crises, and scammers love to exploit that by peddling fear and sowing distrust in the financial system to push folks into buying up loads of precious metals. So, stay level-headed when you’re reading news about precious metals and the stock market to avoid making impulsive decisions.
Stay savvy, steer clear of scams and hype, and your investment in precious metals could turn out to be a solid move. And don’t forget to do your homework and maybe consult a financial expert if you’re feeling uncertain about diving in. Who knows, soon enough your portfolio might be as shiny as King Midas’s.
Is A Tax-Free Savings Account Worth It?
If you’re aiming to boost your savings, invest wisely, or squeeze more out of your money, you might want to consider a tax-free savings account. A tax-free savings account (TFSA) is a savings option that lets you shelter your money and any interest earned from taxes.
These savings plans are pretty popular for growing your money. A 2023 RBC study found that around 58% of Canadians have some kind of tax-free savings account. But like anything, there are some downsides to TFSA, such as contribution limits and tracking requirements.
Here’s all you need to know to figure out if a tax-free savings account is the right move for you.
What Is a Tax-Free Savings Account?
A tax-free savings account is a registered plan that spares you from paying taxes on your earnings. Both the money you put in and the interest you earn are tax-free. To open a TFSA, you need to be over eighteen and have a valid Social Insurance Number (SIN).
This tax-free option was first introduced back in 2009 to encourage savings, but there are limits to how much you can put in. Canadians can stash away up to $7,000 per year in 2024 within a tax-free savings account.
Unlike other registered retirement savings plans where you get a tax break when you contribute, there’s no immediate tax benefit with a TFSA. But the upside is, you won’t get taxed when you take your money out either.
Think of a TFSA like a regular savings account but with some extra perks. You can park guaranteed interest certificates in there, and if you’re feeling a bit more adventurous with your money and have a higher risk tolerance, you can invest in your TFSA to potentially grow your funds even more.
How Does a Tax-Free Savings Account Work?
How your tax-free savings account operates will depend on the type you decide to open. You could opt for a TFSA at your usual bank or credit union and use it as a savings account to sock away cash for things like a down payment on a home, emergency expenses, or other short-term savings goals.
Alternatively, you might go for an investment TFSA and use it to hold mutual funds, exchange-traded funds, or other stock market investments. If that’s the route you’re taking, you’d likely open your investment TFSA with a brokerage.
In either scenario, your TFSA would function like a regular savings or investment account, except with the sweet bonus that any money you put in and any interest you earn would be totally tax-free.
Who Should Open a Tax-Free Savings Account?
If you’re over eighteen with a valid SIN in Canada, you might want to think about opening a tax-free savings account. It’s a smart move for growing your money while cutting down on your tax bill. While the interest you earn in a regular savings account might not rack up a hefty tax bill, every bit you save counts.
And if you’re into investing, a tax-free savings account could be even more attractive because any interest or growth your investments make is shielded from taxes too. As long as you stick to the yearly contribution limits, this kind of account could be a fantastic primary or secondary investment option.
What Is the Current Contribution Room for a Tfsa?
The contribution limit for a tax-free savings account in 2024 is $7,000. This limit can change from year to year and is linked to inflation. However, your specific contribution room may vary.
If you haven’t maxed out your contributions in previous years, any unused room in your TFSA carries over. For instance, if you had $2,000 left from 2023 that you could’ve contributed, you could put in up to $9,000 this year.
But there’s a cap. Currently, the total contribution limit stands at $95,000.
It’s up to you to keep tabs on your contributions and withdrawals to ensure you know how much room is left in your TFSA.
How to Calculate Your Tfsa Contribution Room
To calculate your contribution room in your tax-free savings account, you’ll need to consider the current annual contribution limit, any withdrawals you’ve made, and any unused contribution room from previous years.
Let’s say you’ve had a TFSA for five years.
If you had $3,000 of contribution room left in year one, $1,000 left in year two, none in year three, $2,000 in year four, and none in year five, you’d have a total of $6,000 left over from those years, plus the $7,000 limit for this year. So, you could contribute up to $13,000 before maxing out your contribution room.
But if you also made withdrawals, let’s say $1,000 in year two and $1,500 in year three, those withdrawals would also add to your contribution room. So, you’d have an additional $2,500 you could contribute in 2024.
Do Tfsa Transfers Count as Withdrawals?
Moving your tax-free savings account or shifting some of its funds to another TFSA at a different financial institution doesn’t count as a withdrawal. So, your contribution room stays unchanged.
What Happens if You Over-Contribute to a Tfsa?
Because you have to keep tabs on your TFSA contributions yourself, it’s possible to accidentally put in more than you’re allowed in a single year. Regardless of how the overcontribution occurred, you’ll face taxes for this slip-up.
Overcontributions to tax-free savings accounts are taxed at 1% of the highest excess transaction within a month for every month that the extra money stays in your TFSA.
Tax-Free Savings Account Pros and Cons
Before opening a tax-free savings account, consider the pros and cons:
Pros:
- Tax-free growth potential for your money (no capital gains tax)
- Easy to open
- Investment options are on the table
- You can pull out funds whenever you need
- Unused contributions roll over if you don’t max them out
Cons:
- No upfront tax breaks like some other retirement savings plans
- You’ve got to keep track of your contributions to figure out your contribution room
- There are annual contribution limits
Alternative Savings Accounts to Consider
If you’re not sure whether a tax-free savings plan is right for you, there are other alternative savings options worth checking out.
Registered Retirement Savings Plan
Similarly, a registered retirement savings plan is another government-registered savings account that can help you earn interest. You’re eligible for an RRSP if you pay taxes in Canada and earn an income.
You can contribute a total of $31,560 per year to a registered retirement savings plan — a much higher amount than tax-free savings accounts allow. This plan also allows a $2,000 excessive contribution amount, which could bring your contributions for 2024 up to $33,560.
Like a tax-free savings account, you can roll over any unused contribution room in your account. But unlike a TFSA, there is no lifetime contribution maximum.
Traditional Brokerage Account
If the $7,000 yearly contribution limit doesn’t quite suit you, you might think about opening a brokerage account at an investment firm. With this option, you can invest in many of the same types of investments as a tax-free savings plan, but you’ll have the flexibility to invest more than $7,000 per year.
While there’s no tax-free perk, you could potentially earn more if you have more than this year’s threshold to invest. And unlike tax-free savings accounts, you could grow your money with day trading.
High-Interest Savings Account
A high-interest savings account is a type of account that earns more interest than the national savings average. Right now, high-interest savings accounts in Canada can earn upwards of 5% to 6% annual percentage yield.
On the flip side, a tax-free savings account earns interest too, but typically at a lower rate. You might come across some TFSAs that offer rates close to those of high-interest savings accounts, but they’re pretty rare. While TFSAs have contribution limits, high-interest savings accounts don’t. You can stash away more than the $7,000 limit in a high-yield savings account.
However, any interest you earn in a non-tax-advantaged account will be subject to taxes.
Guaranteed Interest Certificate
A guaranteed interest certificate (GIC) allows you to secure a fixed interest rate on your savings by agreeing to lock away your money with a bank for a set period of time. While you can invest in a GIC within a tax-free savings account, your contribution is limited to the $7,000 cap.
If you’re depositing $7,000 or less into a GIC, a TFSA is a smart move because it shields your interest from taxation. But if you’re looking to invest a larger amount, you’ll have to go outside of a TFSA—and you’ll be taxed on any interest earned.
Other Alternative Savings Options
Certain online financial institutions provide savings options that not only let you earn interest but also help improve your credit score.
Take KOHO, for instance. With KOHO, you can boost your credit while also earning up to 5% back on your savings—a rate comparable to some of the best high-interest savings accounts. KOHO offers many of the features you’d expect from a bank, such as overdraft protection and no NSF fees, while also giving you free access to your credit score. Plus, it offers virtual card access for added convenience.
How to Open a Tax-Free Savings Account
You can open a TFSA at most Canadian banks or credit unions. If you’re opening an investment account, many brokerages and some financial institutions provide this option.
Here’s what you’ll need:
- Your SIN
- Proof of residency
- Proof of age (you must be 18 or older)
You can open a TFSA online or in person, depending on your preference and the specific financial institution you select. The process typically takes less than ten minutes, but if you’re opening an account at a physical location, it might take a bit longer.
Tax-Free Savings Account vs. Roth IRA
A tax-free savings account is akin to a US retirement plan option, the Roth individual retirement account (IRA). Like a TFSA, a Roth IRA allows you to contribute post-tax dollars, allowing your balance to grow tax-free.
Similar to a TFSA, a Roth IRA has yearly contribution limits. For 2024, the contribution limit for a Roth IRA is $7,000, though it’s $8,000 if you’re 50 or older. This limit typically increases each year and is tied to inflation.
However, a Roth IRA imposes early withdrawal penalties. If you withdraw your funds before reaching retirement age, which is 59 ½ in the US, you’ll face a 10% early withdrawal penalty from the IRS (Internal Revenue Service). There are exceptions to this penalty, such as using the funds for a home down payment. Additionally, you can’t withdraw any funds until you’ve owned the account for at least five years.
While a tax-free savings account promotes various types of savings accessible at any point in your life, a Roth IRA is primarily geared toward retirement. Therefore, their purposes differ somewhat.
Is a Tax-Free Savings Account Right for You?
Even if you can’t save as much as you’d like, making the most of the tax benefits of a tax-free savings account can help you make the most of the savings you do have. It’s a fantastic way to earn interest on your money without worrying about paying taxes on any returns that accumulate in your account.
Moreover, it’s a fantastic way to start investing and growing your money for the future. While a tax-free savings account shouldn’t replace a retirement savings plan entirely, it can certainly serve as a valuable supplement, both before and during your retirement years.
In some cases, it can even replace a high-interest savings account by offering tax protections. However, keep in mind that the interest you earn may be lower than what you’d get from a higher-yielding savings account, so it’s important to do your research when deciding where to stash your cash.
You can find tax-free savings accounts with no monthly fees offered by popular Canadian banks, online banks, credit unions, investment firms, and other financial institutions.