This article was updated on June 27, 2017.
During Sobia Ali’s first few years in Canada, she found it almost impossible to save money. She first moved to Toronto from Pakistan in 1997, after marrying her Pakistani fiancé, who had already moved to Canada. Despite having teaching experience and a degree in math and statistics from the University of Karachi, Ali was unable to find a job.
Eventually, she found a gig with a temp agency making $10 an hour, but most of her salary went to pay for daycare for her three-year-old daughter, Abir. Undeterred, Ali, now 43, set up a savings plan at her bank that automatically funneled $100 a month into her savings account. “It worked,” says Ali. “At the end of the first year, I had $1,200, and I started investing. I kept saving, and I used some of the money to buy a house last year.”
What are your goals?
After the rush of your first few years in Canada is over, and you’ve got your career on track, it’s time to focus on saving money and investing for the future.
Your first goal should be to save three to six months’ worth of living expenses in case of an emergency. After that, how you invest your money will depend on the ultimate purpose of the money: if it’s for a short-term goal, such as purchasing a home or car in a couple years, you should stick with low-risk investments, such as a bond fund, money-market fund, GIC* or just keep your cash in a high-interest saving account*.
For goals that are more than five years away, such as retirement, consider putting a portion of your money in stocks. A good rule of thumb is that you should hold a proportion of safer investments, such as bonds or money market funds, that is equal to your age and put the rest in stocks. For example, if you’re 40 years old, you could hold 40% of your portfolio in bonds and 60% in stocks. As many immigrants come into the country in mid-career, they have a shorter length of time before retirement, so you should plan your portfolio accordingly. If you have investments in your native country as well as in Canada, make sure to look at your investments as a whole to ensure a proper balance.
If your employer offers a pension plan or a group retirement plan, you should almost certainly join. Pension plans often include contributions from your employers and either type of plan likely allows you to pay lower investing fees. So you’ll grow your retirement savings faster than you could on your own.
Avoid unnecessary risk
Immigrants are risk-takers by nature, and many come from rapidly growing countries where they are used to high returns. However, using your retirement funds to place bets with risky stocks is not a good plan.
“Immigrants need to start off safe and steady,” says Janet Gray, an Ottawa-based financial planner and Money Coach. Initially this may mean focusing on mutual or exchange-traded funds, which are less volatile but this also means less risk. Rather than speculating on a few technology or mining stocks, consider investing in a low-cost balanced mutual fund to start. The diversification will protect your savings even if some the companies you’re investing in hit unexpected hard times, while the bonds in your fund help protect you when the whole market crashes. “Once you have some experience with different types of investments and financial institutions then consider adding in some strategic risk,” says Gray.
How much do you need?
While financial institutions selling retirement products may say you’ll need 70% of your working income in retirement, in most cases that’s not true. Typical Canadian retired couples can enjoy a comfortable retirement on 50% to 60% of their working income, as long as they own their own home and retire with no debts. That’s because when you retire, the costs of paying the mortgage, raising the kids and saving for retirement disappear.
As well, in Canada the government will help fund your retirement. If you worked in this country, you’ll get money from the Canada Pension Plan when you retire. How much depends on what you paid into the plan when you were working, so immigrants who came over mid-career will receive less than people who worked here for their entire lives. For example, an immigrant who worked in Canada for 20 years and made the maximum CPP contributions each year would currently get $480 a month in CPP benefits if he retired at age 65.
If you’re over 65 and you lived in Canada for at least 10 years as an adult, you’ll receive money from Old Age Security (OAS), although you probably won’t get the maximum amount unless you’ve lived in Canada for 40 years.
Going at it alone
Most immigrants start out in mutual funds with an advisor. But as you become more comfortable with the Canadian financial system, you might become interested in managing your own investments. Sobia Ali originally invested in her bank’s line of mutual funds, but after doing some research, she realized that index funds, which track a specific target index or benchmark, almost always perform better. “I don’t see any reason to buy expensive mutual funds anymore,” she says. “I get the same results cheaper through low-cost index funds.”
Today, Ali says she has a good understanding of the Canadian financial system. She’s saved some money in her daughter’s RESP and she’s building up her RRSPs. Ali plans to build up her workplace pension and pay off her mortgage before retirement, two things that will be the foundation for a prosperous retirement. “I’m pretty confident now in managing my finances,” she says. “Many of my Canadian-born friends come to me to ask for advice.”
THE COMPLETE GUIDE FOR NEW CANADIANS:
2. Get job experience
3. Build a credit score fast
4. Property buying tips
5. Pay less tax
6. Invest wisely
7. Insurance to buy
8. Finding childcare
9. Avoid scams
10. Free resources
11. Getting started checklist