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| quote: | Originally posted by The Highroller
What are the advantages and disadvantages of putting your savings into an RRSP or into a mutual fund at a young age (~20 years old)? |
Well at that point in time you are probably in the lowest tax bracket (ie paying no taxes). I don't know what it's called in Canada, but in the states I opened what is called a "Roth IRA" (IRA = RRSP, btw). In a Roth IRA you don't deduct your yearly contributions from your income, you instead pay taxes on them that year. But remember, you are in the lowest tax bracket at that time, so you aren't really paying any taxes on that money at all. The beauty of a Roth IRA is that the money is UNTAXABLE when you withdraw it, even your profits from the investment (capital gains, disbursements, etc.).
So you end up paying no taxes on your investment and on your gains, pretty sweet deal! Downside is that you can't withdraw the money until you are 65, but that gives the money a good and long time to compound (average stock market gains in the US are about 10% annualized over a long period of time, 10+ years). Rule of 72 means that at a 10% annualized gain, you are doubling your money roughly every seven years. So between the age of 20 and 65 (45 years) your money will on average double itself over 6 times. With an investment of $1000, that becomes around $64,000 by the time you are 65. TAX FREE.
Of course this is with a constant investment portfolio comprised of investments that mimmik the economy as a whole, like an index-fund. If you micromanage your portfoloio, results will vary (for better or worse).
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"It's mercifully over. But a new phenomenon has taken hold. I recognize it: feelings. Now that they're back, even overcompensating, I never want to lose them again. Bitterness, anger, jealousy, sadness: They all make me happy."
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no debt
