The Best Stock Investments for Retirement in Canada

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This article tries to help you get a general sense, as a Canadian, what the best stock investments are given your financial situation.

The title of this article can be somewhat misleading. There is no one BEST set of investments for all investors to prepare for retirement. Depending on your wealth, age, income, standard of living, spending, expected standard of living at retirement and a whole host of other factors, the investments you chose for retirement can vary wildly.

That being said, there are some simple, generic tips that you can follow to help you get started (read our disclaimer before reading and always consult your financial advisor and accountant before attempting anything).

As you get older, the general rule of thumb for a Canadian who is investing for retirement is, to move more and more of your assets into safer, less taxed income producing assets. In terms of stocks, these are usually blue chip, large cap common stocks that pay a decent dividend OR; preferred shares that pay a decent dividend. If you are unsure of the difference between these two classes of shares, be sure to read our linked articles about each.

Investing For Retirement

Here are some other tips you can follow for retirement:

Tax shelter or tax defer your investments as well as you can. Tax shelters include buying stocks within a lovely TFSA (but one that can hold equities). Most Canadians are not aware that they can hold stocks and other assets within a TFSA. Most seem to think that it can only be set up as a bank account. With these great asset classes, you can insert 5000 dollars per year tax free. Any gains made, no matter how large, on these items can not be taxed. Be sure to read the rules carefully as we do not go into great detail here.

The main way to defer taxes for retirement in Canada is much better known: RRSPs. Registered Retirement Savings Plans can hold stocks from Canada and the USA and other assets. There are no taxes paid on these instruments unless you withdraw money from them. The beauty of this is you make more money now per year before retirement. You can contribute to your RRSPs tax free and pay the tax on the gains down the road when you AREN'T working a standard job and are in a lesser tax bracket.

As for specific Canadian stock recommendations, we would suggest the following at the time of writing (dec 10,2010):

Preferred shares in Great West Lifeco, Preferred shares in the big 5 banks (TD, BNS, Royal Bank, Bank of Montreal, CIBC), preferreds in many other large Canadian companies like Canadian utilities (TSX: CIU or CU).

As for common stocks, we are currently at the belief that the Canadian market is overvalued as a whole. In the future, when we re-evaluate this, we will update you on which stocks we feel are a good buy. As usual, we are not suggesting this as investment advice, do your own due diligence.

Disclosure: the author is long various Canadian preferred shares mentioned and short TD bank and Royal Bank of Canada.