2023-05-12 17:39:56
Diversify your portfolio by investing in asset classes like commodities, works of art, precious metals, forests… (Photo: 123RF)
GUEST EXPERT. You just received a tax refund and you want to invest it, but all your registered plans (RRSP, TFSA, RESP, etc.) are maxed out. You are entering a complex territory, where there will be several investment options. It will also be necessary to fully understand the tax implications before making an investment decision, otherwise the tax bill could be steep. Here are some possible solutions for you.
Invest in non-registered investments
Investing in a non-registered account is probably the easiest option, as it allows you to keep the same types of investments that you hold in your registered investments. Investments in a non-registered investment account can include stocks, bonds, mutual funds, exchange-traded funds (ETFs), guaranteed investment certificates (GICs), and more.
You can choose investments that suit your investor profile and financial goals.
The main disadvantage of the non-registered account is that it comes without the tax benefits of registered plans. Thus, you will have to declare the yield generated (interest, dividend, capital gain, etc.) when you file your income tax return and you will have to pay tax on this amount.
Invest in real estate
Real estate is a popular area of investment because it can provide steady cash flow and capital appreciation while diversifying your portfolio due to its low level of correlation with other asset classes, such as stocks and bonds.
However, getting into real estate investing can be expensive and requires active property management. In addition, real estate is often illiquid since a property cannot always be sold quickly.
If you want to avoid some of these drawbacks, you can invest in real estate by participating in real estate investment trusts (REITs) or by investing in real estate mutual funds or exchange-traded funds (ETFs).
Invest in non-traditional assets
You could diversify your portfolio by investing in asset classes like commodities, works of art, precious metals, forests, etc. Non-traditional assets have different characteristics from traditional assets and can provide benefits such as low correlation to stock markets, protection against inflation, higher returns and opportunities for diversification.
However, it is important to note that non-traditional assets can be riskier and illiquid than traditional assets and often require larger investments, with higher fees.
life insurance
Taking out life insurance can sometimes be an attractive option for people looking to diversify their portfolio and protect their wealth, while benefiting from tax advantages. However, it is important to understand that life insurance is not an investment in itself, but rather financial protection.
Because claims are paid tax-free, a life insurance policy, whether whole, universal, or participating, is sometimes considered a tax-efficient investment, particularly in the context of estate planning. This approach is aimed at a tiny minority of people who have used all the other methods to manage their tax bill, such as RRSPs, TFSAs, RESPs, etc. These people must have paid off all their non-deductible debts, pay a very high marginal tax rate and be sure that their retirement is well funded, leaving them the possibility of distributing their surplus wealth to others.
Finally, other types of insurance can also be considered, in particular for shareholders in a company.
Invest in your image
As you can see, the choice is wide for investing outside of registered investments. It is important to note that all investments involve risks and rewards; a thorough analysis of your financial goals and risk tolerance is necessary before deciding where to invest. A financial planner can help you develop an investment strategy that suits your particular financial situation, because in this area, the advice of a professional can make all the difference.
Pascal Duguay, Pl. Fin.
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