When it comes to investments, there is a lot to think about!

Use this guide to help you better understand the different investment accounts, investment options, and tools available to help you invest with confidence!

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Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies. © Sun Life Assurance Company of Canada, 2018.

Investing with c o n f i d e n c e

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What are the types of investment accounts?There are different types of investment accounts available to you – and depending on your company you may have some of these plans available to you through your group program.

Depending on the type of account you choose, you will have access to investments that grow tax-deferred – such as Registered Retirement Savings Plans (RRSPs), Deferred Profit Sharing Plans (DPSPs) and Defined Contribution Pension Plans (DCPPs) – and investments that grow tax-free – such as Tax-Free Savings Accounts (TFSAs). In addition to these plans, you may also have access to non-registered savings where investment growth is taxable, but nevertheless provides you with the opportunity to save money and invest those savings to benefit from compounding returns over time.

Registered Non-registered

Investments grow tax-deferred

Investments grow tax-free

Investment earnings are taxed

RRSP/RSP DPSP DCPP TFSA Non-registered

RRSP DPSP DCPP TFSA

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Here’s an overview of how each of these plans work:

Registered Retirement Savings Plans (RRSPs or RSPs)A Registered Retirement Savings Plan (sometimes called an RSP) is a personal savings plan registered with the Canadian government, designed for saving for the long term. Unlike other savings plans, RRSPs tax shelter your investment earnings and offer you some tax relief when deposits are made. The idea is that you save money before tax today to be used as income in retirement, when your income is typically lower.

An RRSP is an account in which you choose a number of investments for your savings, such as: savings deposits, treasury bills, guaranteed investment certificates (GICs), mutual funds, bonds, and/or equities. Investment returns on these savings grow tax-deferred until you withdraw them.

In addition to the many advantages of group RRSPs, such as easy payroll deductions and low management fees, by contributing through payroll deduction to your company’s group RRSP, your contributions are invested before tax is taken from your income. That means your net take-home pay would only be reduced by $15 when you make a $25 contribution (assuming a 40 per cent tax bracket).

Deferred Profit Sharing Plans (DPSPs)Deferred Profit Sharing Plans are very similar to RRSPs and may be offered by your company through your group plan. Where DPSPs differ from RRSPs is in who is depositing the money. Where RRSPs can accept deposits from you or your employer, a DPSP can only accept employer contributions. In other words, you cannot make contributions to a DPSP; only your employer can.

It’s for this reason that when a company has chosen to offer a DPSP account (for employer contributions), they often also choose to offer an RRSP (for your personal contributions).

Defined Contribution Pension Plans (DCPPs)A Defined Contribution Pension Plan (or DCPP) is another type of account that you may be offered by an employer. Unlike RRSPs, DCPPs are only available through company programs.

In many cases, both you and your employer will make contributions to a DCPP. Similar to RRSPs and other tax-sheltered savings accounts, what goes into your account and how you invest these savings determines how much money you will have, which will in turn determine your income in retirement.

Tax-Free Savings Accounts (TFSAs)Similar to the other accounts described above, your company may also offer you a Tax-Free Savings Account (TFSA). TFSAs are savings accounts in which you deposit your savings and choose the investments in which you want those savings invested.

Though savings grow tax-free, the TFSA works almost opposite to the RRSP and other tax-sheltered accounts. For starters, you don’t get tax breaks for contributing, but you can make withdrawals without being taxed at all. Another handy feature of the TFSA is that any withdrawals you make can be re-contributed in later years without affecting that year’s contribution limit. And, you won’t be forced to take your money out at a certain age. As long as you’re 18 or older and a Canadian resident, you can save with a TFSA.

Non-Registered Savings‘Non-Registered Savings’ is a term that reflects a broader range of various group savings accounts where contributions do not reduce your taxable income for the year, and in which income earned on the growth of any of your investments held in the account are taxable. The contributions can be made by you personally through payroll deductions, or by your employer, in which case employer contributions are also treated as taxable income. Investment income is reported to you annually for reporting on your personal income tax return.

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What are my investment options?

An asset class, or a fund class, is a group of securities that have similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. Asset classes are commonly divided into three common groups, such as equities (stocks), fixed-income (bonds) and cash equivalents (money market funds). The following provides a list of some of the broader asset classes that may be offered to you in your group plan:

• Guaranteed – When you invest in a guaranteed fund, you earn a set rate of interest that is guaranteed for a specific term, so it’s considered to be a low-risk investment, and depending on the length of the term, the interest rate is fairly low, relative to the returns of some of the alternative asset classes.

• Money market – Money market funds invest primarily in short-term (less than one year) government treasury bills and corporate notes. Because they are short-term and issued mostly by the government or high quality businesses, they are often considered to be low-risk and also earn a fairly low rate of return.

• Bond (Fixed income) – Bond or fixed income funds typically invest in bonds issued by Canadian governments and companies. As well as paying a rate of interest, many bonds held in these funds also have a “market value” which can rise and fall. Bond funds have the potential for higher returns than money market or guaranteed funds, but there is typically a more moderate risk of loss.

• Balanced – Balanced funds invest in a mix of stocks, bonds and cash investments. The mix will change as market conditions change, but it usually stays within pre-determined ranges (for example, stocks 40-60 per cent, bonds 30-50 per cent, cash 0-30 per cent). Balanced funds tend to be higher risk than bond funds, but lower risk than equity funds. The benefit of a balanced fund is that it provides automatic diversification by investing in a variety of asset classes that range in degrees of risk, thereby reducing your exposure to the risks of one particular asset class.

What is an asset class?

GUARANTEED

FUNDS MONEY

MARKET BONDSEQUITIES

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• Canadian equities – Canadian equity funds invest primarily in stocks of Canadian companies. Because stocks have traditionally risen in value more than other types of investments, they offer the greatest potential for long-term growth. However, with stock prices fluctuating more than other types of investments, Canadian equities are typically considered to be a higher risk asset class.

• Foreign equities – Foreign equity funds invest primarily in stocks of companies located outside of Canada. As with Canadian equity funds, historically foreign equity funds offer greater potential for long-term growth, but can be considered a higher-risk asset class. Where foreign equity funds can be especially beneficial is through the diversification they provide to your portfolio. Canada’s share of the world equity market is only about 3 per cent, and many investors feel that there are considerable investment opportunities out-of-country. By diversifying your equity investments globally, you spread your portfolio over a greater percentage of the world market and reduce your overall investment risk.

While asset classes can help you categorize the degree and types of risks associated with an investment, within each asset class available in your company plan, you will also have a listing of funds that fall into the respective asset class.

Before looking at the different funds for each of the asset classes available in your specific group plan, it’s important to understand some of the terms and classifications that apply to funds. When looking at the fund names or the descriptions of the funds available in your plan, you may have the following questions:

What is a fund’s management style?While funds are categorized by asset class, they are also described in terms of their management style. Management styles are broadly described as actively managed, or passively managed. A passively managed fund is a fund manager style where investments held within the fund are purchased to match or track an underlying index, such as the S&P TSX. An actively managed fund is a fund manager style where investments are not chosen based on the make-up of an underlying index, but instead are based on the analysis and forecasts of the fund manager.

What is an index fund?Funds in which the investment manager takes a ‘passive’ management style are typically called index funds. The performance of an index fund should be similar to the performance of the underlying index. Because of their passive style, these funds tend to have lower management fees.

What is a mutual fund?A mutual fund combines the money of many investors into a single pool. A professional investment manager manages them. The segregated funds available through your company group plan usually invest either in units of a pooled fund or mutual funds.

What is a fund?

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What is a segregated fund?An investment in segregated funds is similar to an investment in mutual funds. Both types of funds combine money from a large number of investors and these assets are invested and managed by a professional fund manager.

Different than with mutual funds, the assets held in segregated funds are owned by the insurance company but are segregated from its other assets. Neither the value of the assets nor the rates of return are guaranteed.

Segregated funds are the investment options underlying an annuity or life insurance contract. As such, if you declare bankruptcy, your segregated fund savings may be protected from your creditors. There are a number of exceptions to this protection, requiring each case to be looked at individually. Moreover, when you die, the full value of your account (all contributions plus earnings) can be paid directly to your beneficiaries without passing through your estate and incurring probate.

What is an exchange-traded fund (ETF)?An exchange-traded fund (ETF) is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.

What is a stock or share?Investments that represent ownership in a company are called stocks or shares. They are sometimes referred to as equities. Though you can purchase stocks or shares of one specific company, equity funds, such as Canadian or foreign funds, will typically hold the stocks of a number of different companies within that fund.

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How does my money grow?Your investments grow in three ways:

Interest – Similar to when you pay the bank if you take out a loan, a borrower pays interest to the lender of money for a specified period of time. In this situation, you are the lender of money, and the fund manager is the borrower.

Dividends – Corporations pay dividends to the shareowners when possible. Dividends are not guaranteed, as the amount may change or cease depending on company results.

Capital gains – You realize capital gains when selling an investment at a higher market value than the original purchase price (or book value).

Dollar cost averagingWhen you contribute to your investments regularly, either from payroll deductions or through separate, stand-alone contributions, you automatically get the advantage of dollar cost averaging. What this means is that because you are making frequent contributions, you purchase more units when the price is low and less units than when the price is high. Overall, the average price you pay per unit is typically lower than the actual average price per unit.

Contribution

Average price paid per unit:$6.93

Units bought

$100 10

$100 20

$100 13.33

Total: $300 Total: 43.33

Interest

Dividends

Capital gains

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The importance of diversifying your portfolioFrom year to year, there’s no telling which asset classes will be the star performers. There’s also no pattern to how predictable returns will be. That’s why it’s important to diversify your portfolio.

Diversification is an approach in which you choose your investments based on combining a variety of investment funds that range in geographic or fund management styles.

Here are some additional tips to consider when diversifying:

Diversify for every stage of life

Just beginning your career? With retirement decades away, you have the chance to make the time work for you by increasing your portfolio’s long-term investment risk, setting yourself up for higher potential returns.

Midway through your career? Retirement is still years away, so make the most of the time you have to grow your investments with a moderate increase in the long-term investment portion of your portfolio.

Getting close to retirement? With retirement only a few years away, it makes sense to align your portfolio with your retirement income goals. By diminishing investment risk, a diversified portfolio can help ensure you’re closer to your dreams.

Diversify by asset classChoosing to invest in a combination of different asset classes means that your portfolio of investments are spread across investments that may react differently to the same market. For example, when stocks are declining in value, the bond market could be experiencing positive returns.

Diversify within an investment typeDiversifying within an investment type means choosing investments in the same asset class that could react differently to the same event. An example of this is choosing a Canadian equity that invests primarily in energy, and in another that invests primarily in telecommunications. By investing in areas that could react differently to the same event, you balance your overall investment volatility – losses in one area may be offset by gains in another.

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Choosing your investment approachYou will have a variety of investments to choose from in your company group plan, but these investments can be classified according to two overall approaches to investing: built FOR me and built BY me.

You can use the following chart as a guide to help you decide which investment approach is best for you.

CHOOSE WHAT IS IMPORTANT TO YOU FROM THE FOLLOWING STATEMENTS BUILT FOR ME

BUILT BY ME

My priority is ease of decision-making. ✓

I am looking for an approach that is mostly maintenance-free. ✓

I don’t want to manage the investments in my account or I don’t feel I have the expertise to manage my own investments.

✓

I am interested in selecting my own funds. ✓

I will take the time to read the fund pages online and understand the risks involved. ✓

I want an approach that fits with my personal risk profile and I will manage the investments in my account as necessary.

✓

Built FOR me Built BY me

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Built FOR me investments are designed for more of a hands-off approach to investing. The built FOR me approach provides a one-stop approach where you choose one investment, typically based on either a target date or a target risk level, and the fund automatically combines the appropriate asset classes and investments. Depending on your company plan, you may have one or both of these options available to you.

Target date fundsTarget date funds have asset mixes that automatically adjust to reduce your exposure to higher risk investments, such as equities, as you get closer to your target date. All you have to do is pick the date closest to when you will need your money, then choose the target date fund closest to this date.

You should consider a target date fund if you:• have little interest, or feel you lack the knowledge or experience to actively manage

your portfolio; and/or• are comfortable with the fund’s strategy of decreasing levels of risk and potential

returns as you approach your retirement date.

If you decide to invest in one of the target date funds, all you have to do is:

1. determine your target date; and

2. invest in the fund that most closely matches this date. For example, if your target date is the year 2041, choose the fund with the year 2040 in the fund name.

Target risk fundsTarget risk funds (sometimes called asset allocation funds) are designed to match your comfort level with investment risk. Target risk funds take care of the active investment decision-making for you. Each target risk fund is designed to match a particular level of risk tolerance – and is re-balanced regularly to ensure that its target asset mix is maintained on an ongoing basis.

You should consider a target risk fund if you: • have little or no interest, or lack the knowledge or experience to actively manage your

portfolio; and/or • want the assurance that you will always be comfortable with the investment risk level

of your portfolio.

If you decide to invest in one of the target risk funds, all you have to do is:

1. complete the Asset allocation tool. It provides you with an investment risk profile/score based on your answers to the questions – and it only takes a few minutes to complete;

2. invest in the fund that most closely matches your investment risk profile/score; and

3. review your risk tolerance at least once each year – or when a major life event occurs – to ensure that the target risk fund that you’re invested in continues to meet your needs. If it doesn’t, you can switch to another fund that better matches your risk tolerance.

Built FOR me

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Your company plan may also have individual investment funds that you can choose from to build your own portfolio.

You should consider building your own portfolio if you:• are comfortable choosing your own investment funds;• are able to actively manage your portfolio; and• will monitor and make any needed changes to your portfolio to ensure it continues to

reflect your investment goals.

To build your own portfolio, you will need to:

1. complete the Asset allocation tool;

2. review the funds available in your company plan;

3. choose and invest in a mix of funds to match the target percentage for each asset class illustrated in your risk profile/score;

4. review your portfolio regularly, ideally at least once a year, and make any adjustments needed to maintain your target asset mix percentages; and

5. review your risk tolerance at least once each year – or when a major life event occurs. If your risk tolerance has changed, you will need to adjust your mix of funds.

Built BY me

Investing with confidence is about keeping sight of your long-term goals and utilizing the tools and information available to help you.Here are some resources available to you to help you invest with confidence.

Website

mysunlife.ca

You will need your access IDand password

Log in to your account to access online planning tools to help you determine how much to save, help you make decisions, and help you understand your savings and income needs.

my financial centreView your account balance and access important links to managing your account online.

mysunlife.ca > my financial centre

my money toolsAsset allocation toolWhile growing your money is important, it’s equally important that you’re comfortable with your choices. This tool will help you determine your investment time horizon and comfort with investment risk, and in turn, help you select the investment options that are right for you.

Retirement planner This tool is designed to help you better understand how much you will need to save in order to achieve your retirement goals, and whether you are on track to get there.

mysunlife.ca > my financial centre > Resource Centre > my money tools

my learning centreFor a simple way to learn more about the investment approaches available to you through your company group plan, watch the informative investment videos in my learning centre.

mysunlife.ca > my financial centre > Resource Centre > my learning centre

Learn & Plan Explore Money and Health topics, along with Tools & Calculators. Go to mysunlife.ca and select LEARN & PLAN (located above the CUSTOMER SIGN IN box).

Money for Life newsletter Get regular tips and tools for living brighter, today and in retirement. Go to mysunlife.ca and select LEARN & PLAN (located above the CUSTOMER SIGN IN box). Scroll down to MONEY FOR LIFE NEWSLETTER and choose Subscribe.

Know your responsibilities As a member of your workplace plan, you’re responsible for making investment decisions and for using the tools and information that have been provided to help you make these decisions. You should also decide if seeking investment advice from a qualified individual makes sense for you.

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