Lou, 39, is curious about flow-through shares and other tax-enhanced investment options.
Source: www.moneysense.ca
Q. I’ve done some research into tax-enhanced investment options, including corporate-class or swap-based funds, investments that pay a return of tax-free capital, flow-through shares, and life insurance strategies to help reduce taxes. When should someone consider these investment options and how do they determine which one is best for them?
– Lou
A. Lou, my first thought is don’t participate in any “tax-enhanced investment” options until you have maximized your RRSP* and TFSAs* and, if you have children, RESPs. Each one of these vehicles allows your money to grow tax-free, and each is relatively simple to participate in.
Compare the Best Savings Accounts in Canada* >
I’d also caution you not to invest in any “tax-enhanced investment option” until you’ve modelled it in financial planning software that accurately illustrates your current and future cash flow. (A financial planner can help.) This means a little work for you to get your numbers together, but once you do, you’ll be able to:
- Confirm the strategy will work as expected;
- Compare other solutions to measure the risk/reward tradeoff; and
- Have confidence and feel good about your decision.
Using software to model the concept only may be misleading. Concept software is useful to simplify and explain a strategy, but it rarely gives the big picture, which is what you need to make a good