January 2025
When it comes to building wealth, the concept of compounding is one of the most powerful tools at your disposal. Registered accounts such as RRSPs, TFSAs and FHSAs not only offer tax advantages, but also allow your investments to grow exponentially over time thanks to compounding.
But did you know that the timing of your contributions can significantly affect the outcome?
Take the example of an RRSP investment: starting with $100,000 and growing at 8% per year, the timing of your contributions—whether made at the beginning, each month or at the end of the year—can make a significant difference over a 25-year period.
The Power of Early Contributions
Parameters of the graph: 8% compounding annually. Ignoring tax considerations as it is within a registered plan. Contributions are indexed at 2% increase per year to reflect a rise in the RRSP contribution limit over the lifetime of the individual’s investment horizon.
Why Early Contributions Work
The principle is simple: compounding grows your wealth by earning returns not only on your initial investment, but also on the returns that accumulate over time. Registered accounts such as RRSPs shelter these returns from taxes, amplifying the effect.
In a high-growth scenario, even a small adjustment in timing—such as making contributions earlier in the year—can have a significant impact on your portfolio’s performance.
By using registered accounts and the benefits of compounding, you can put your savings on the fast track to growth. For tailored advice, contact your Pembroke representative to develop a strategy that meets your financial goals and helps you maximize the benefits of compounding.
Registered Account Limits for 2024 and 2025
Tax-Free Savings Account (TFSA): $7,000 per year for both 2024 and 2025. Unused contribution room carries forward indefinitely, providing flexibility for larger future contributions.
Registered Retirement Savings Plan (RRSP): The maximum contribution limit is $31,560 for 2024 and $32,490 for 2025. This is calculated as 18% of the previous year’s earned income up to the government-set annual maximum, with adjustments for inflation and wage growth.
First Home Savings Account (FHSA): $8,000 per year, with a lifetime limit of $40,000. Unused contributions can be carried forward.
Other Articles Of Interest
Disclaimer
This report is for the purpose of providing some insight into Pembroke and the Pembroke funds. Past performance is not indicative of future returns. Any securities listed herein, are for informational purposes only and are not intended and should not be construed as investment advice nor is it a recommendation to buy or sell any particular security. Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Pembroke seeks to ensure that the content of this document is correct and up to date but does not guarantee that the content is accurate and complete and does not assume any responsibility for this. Pembroke is not responsible for decisions or actions taken or made on the basis of information contained in this document.
