FHSA: Which investment options should you choose?

The ideal asset mix for your first home savings account (FHSA) mainly depends on your tolerance for risk and the length of time you have until you buy your home. Here’s why, using real-life scenarios.

Understanding FHSA investment options

The FHSA has become a must-have savings plan for anyone planning to buy their first home in Canada.

As with other registered savings plans, there are a variety of investment options to choose from, each with their own impact on your FHSA returns. Some investments carry more risk but have the potential to earn higher returns. Others are safer, but the returns they generate are more modest and more stable.

Here’s an overview of FHSA investment options:

• Investment funds : These funds offer a multitude of possibilities. Depending on your preferences and your investor profile, you can choose equity, bond or income funds, and you can even focus on specific geographical regions, management styles and risk levels.

• Guaranteed interest funds (GIFs): Similar to guaranteed investment certificates (GICs) from the banks, GIFs provide a fixed and guaranteed rate of return over a pre-set period of time, up to 10 years. They can also be used to balance a portfolio’s level of risk.

• High interest savings account: Like GIFs, this investment option guarantees the capital you invest and offers higher returns than a savings account at a bank. However, the rate of return can vary over time.

Your advisor can help you choose the investments that are best suited to your needs and to your time horizon until you buy your first home. For example:

• If you have some years before you plan to use your FHSA, you can afford to choose riskier investments in the early years to earn potentially higher returns because you have a longer time horizon.

• If you’re planning to buy a home sooner, you might opt for a more balanced and safer strategy to reduce your risk.

Other factors may also come into play, such as your risk tolerance and your personal goals. That’s why it’s important to speak with an advisor, who can analyze your situation and work with you to determine your investor profile.