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RRSP, TFSA, ETF? SMH

Why does personal finance lingo sound like a covert military operation? We go inside the exclusive acronym party to spell it all out

Investing lingo

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Have you ever tried to read an investment brochure, and become convinced you were suddenly dyslexic? You’re not alone. Finance types have never met an acronym they didn’t love, and they spew out more compound words than a German engineering textbook.

It’s easy to get lost in the lingo, since the language of finance can feel like it’s been deliberately designed to freak you out.

So for now, let’s skip the “secondary market annuity” and “credit default swaps.” Here are a few definitions of the most common investing terms, along with scenarios where you might actually use them.

Mutual Funds

“Strength in numbers” is the idea behind mutual funds. They’re run by portfolio managers, who pool your money together with other investors to buy stocks, bonds, and other kinds of assets (when combined, these assets are called a “portfolio”). When the portfolio does well, the profits are divvied back up among the individual investors.

Since mutual funds are managed by investment professionals, they’re great if you want someone else calling the shots and can afford to pay for it. Management fees for mutual funds tend to run from 1-3 percent on whatever dollar amount you hold in a fund.

Can you use it in a sentence?

Jenn opted for a mutual fund after she got that big inheritance. The manager is basically Christian Bale’s character in the Big Short. Haircut and everything.  

ETF

Exchange traded funds are like mutual funds’ cousins. They also pool the money of a group of investors, but instead of trying to identify individual winners in the market, ETFs are tied to an “index”, which is an entire genre of investments (like, the top 500 companies, or renewable energy as a whole industry). ETFs are really popular these days, since their fees are generally a lot lower than than those of mutual funds. Expect to pay 0.25-1 percent, tops.

Can you use it in a sentence?  

Emmett had invested in the JJA Bloomberg Agricultural ETF, which is weird, because that fund includes everything he won’t eat anymore: corn, soybeans, wheat, sugar, and coffee.

RRSP

AKA, the Registered Retirement Savings Plan. It’s a savings account where you can store money for retirement and invest it however you like (mutual funds, bonds, etc.) RRSPs are most people’s first thought when it comes to retirement planning, but they can also be used to save for buying a home and going back to university, and you get a tax refund for contributing to them.

A few things to keep in mind about RRSPs: 1) There’s a limit to how much you can sock away. In 2017, it’ll be 18 percent of your gross income or $26,010, whichever is lower. 2) When you finally retire and take advantage of your RRSP savings, the government will charge you income tax on it, so make sure to factor this into your savings plan. 3) Try to not touch your money once you’ve invested it in an RRSP. If you decide to withdraw to finance your summer travel plans, for example, you’ll get charged a huge penalty.

Can you use it in a sentence?

Charlotte’s workplace matches her RRSP contributions, so she socks away a tenth of every paycheque to get all that sweet free money.

TFSA

Stands for Tax Free Savings Account. Similar to an the RRSP, this is kind of like a savings account where you can invest your money. But unlike the RRSP, the government doesn’t take any tax when you withdraw your money (hence “tax free savings”), and if you withdraw from your TFSA, you don’t have to put money back into it. Instead, your contribution room will increase the following year.  TFSAs are great for both short and longer-term saving, like when you need to get new furniture, buy a car, or plan for a kid. They’ve also got contribution limits attached to them — $5,500 in 2016 — but if you withdraw all your money one year, you can just add that same amount back on top of next year’s limit.

Can you use it in a sentence?  

Arjun decided to empty out his TFSA when he was planning that misguided road trip across Canada.

Alternative investments

It’s not all about the stock market. Given you know what you’re buying, there are tons of things that classify as sensible “alternative investments” things like real estate, fine art, or gold. Remember, these are things that are known to appreciate in value. Your cargo bike is not an alternative investment.

Can you use it in a sentence?  

Sean and Erik opted for an alternate investment instead of a mutual fund. They bought a house with a basement suite, and rented it out to a college kid who blasts that obnoxious Chainsmokers’ song Every. Single. Night.

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