Building a Strong Financial Future: Navigating Cash and Investments as a Newcomer to Canada

As a newcomer to Canada, you have the opportunity to build a strong financial foundation and make informed decisions about your money.

In this article, we'll discuss important factors like whether to keep funds in cash or invest and how to handle a potential recession. This can help you manage your finances better.

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Should I Keep Cash or Invest?

When it comes to managing your money, one common dilemma is whether to hold onto cash or explore investment opportunities.

While there are advantages to having cash on hand, it's important to consider the drawbacks as well. Holding a significant amount of cash can leave you vulnerable to inflation, which diminishes the value of your money over time. Keeping your cash in low-interest savings accounts might not generate enough growth to keep up with inflation, particularly after taxes. This can limit your ability to accumulate wealth. On the other hand, investing your money presents opportunities for higher returns and potential growth.

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Ideally, it's important to strike a balance and consider when holding cash is appropriate. Building an emergency fund in cash is beneficial as it can act as a safety net for unforeseen situations. Furthermore, for short-term financial goals or immediate expenses, it's wise to keep some necessary funds to cover 4 to 6 months of expenses in cash. A good place to keep those funds would be a savings account.

If your goal is to build wealth and earn higher returns, however, you might consider putting your funds into various investment instruments such as stocks, and real estate. Re-investing the earnings from your initial investments may provide opportunities for your wealth to grow over time allowing you to make even more money (compounding effect). When you spread your investments across various assets, it lowers the chance of losing a lot of money at one time due to market changes (diversification effect). This strategy helps protect your wealth from big ups and downs in the market.

What Should I Do with My Money if There's a Recession?

Understanding how to navigate your finances during a recession is important for long-term financial stability. A recession is a period of economic decline characterized by reduced economic activity, job losses, and decreased consumer spending. When faced with a recession, it's helpful to take proactive steps to safeguard your financial well-being.^[1]

Having an emergency fund is crucial during a recession. Make sure it has enough money to cover your living expenses for several months, acting as a safety net in case of job loss or financial setbacks. It’s a smart idea to review your budget, focus on essential expenses, and reduce non-essential spending to stay financially stable during tough times.

During a recession, investment markets often experience increased volatility. Be sure to stay calm and avoid making impulsive decisions.  History has shown markets recover from recessions, highlighting the importance of taking both short-term and long-term views when investing.

To recession-proof your finances, consider diversifying your investments and taking a long-term view:

1) Spread your investments across different asset classes and sectors to help mitigate risk during economic downturns.

2) Stick to your investment plan and avoid making hasty decisions based on market volatility.

3) Maintain a focus on your long-term financial goals.

Taking this approach may increase your likelihood of long-term financial success, even in the face of a recession.

As a newcomer to Canada, understanding how to manage your finances is essential for building a solid financial future.^[2] By thinking carefully about whether to keep your money as cash or invest it, you can make smart choices that bring you closer to achieving your financial goals and dreams.

In short, knowing how to handle a potential recession empowers you to take proactive steps to safeguard your financial well-being. Remember to seek guidance from financial professionals and stay updated on changes in the Canadian economy in order to make better financial decisions. With the right strategies in place, you can confidently navigate financial challenges and seize the many opportunities that lie ahead for you in Canada.

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Why Choose TD?

150 years helping Canadians:

TD has a proud history of delivering financial solutions to Canadians for more than 150 years. TD also brings a century of experience helping newcomers navigate the unique challenges of the Canadian banking system.

With over a thousand branches, a reputation for excellence in financial services, and the ability to also serve you in more than 60 different languages, TD has become one of the largest and most trusted banks in Canada, now serving 16 million Canadians.

TD offers online support and resources of interest to newcomers on topics such as banking. basics, moving to Canada, credit score essentials, and more. TD is open longer hours for your convenience. TD has thousands of ATMs across Canada to help you take care of your everyday banking quickly and easily.

Ready to Bank?

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Book an appointment to talk with a TD Personal Banking Associate about the TD New to Canada Banking Package. You can book online right away, or visit the TD website to learn more.

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[1] https://www.canada.ca/en/financial-consumer-agency/services/covid-19-managing-financial-health.html

[2] https://financialpost.com/moneywise-pro/how-to-recession-proof-your-investments