I have heard that RRSP's aren't doing well, should I do something else?

Geoff Cook - CFP, CHAIP

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A very common question - "I have heard that RRSP's arent doing well, should I do something else?"

I often find people are not fully aware of what they are investing in (end all asset) with their RRSP and they get frustrated when they look at their accounts and see them down.

Often people forget that an RRSP is simply a imaginary boundary set up by the government to protect your investments from tax until you take the money out.

Inside this imaginary boundary you can invest in pretty much anything, and have as many accounts as you wish with as many different investment firms you wish. It is not the RRSP that is performing good or bad, but the investment inside the account.

Inside an RRSP some examples of investments you could own are;

  • Stocks
  • Bonds
  • Real Estate
  • Gold and Silver
  • Private Mortgages
  • Mutual Funds/Segregated Funds
  • GIC's
  • Annuities
  • And more!

What is most important to understand is why?
- Why am I investing in an RRSP?
- What are the benefits?

Here is a couple common reasons that I see...

I need to save for retirement - This is true. For the most part unless we have one of those gold plated pension plans, we do need to save for retirement. An RRSP could be the best way to do it. Whether you want to save for retirement in an RRSP or TFSA is a different conversation but at the end of the day you need to do something.

My parents told me to - If you are lucky enough to have parents who forced you to start saving when you were young that is awesome. Future values of money is most effected by time. The more time your money is invested, the longer conpound interest is working for you. Parents are one person people often listen to, but maybe you also heard it from someone else, read it in a book, publication etc.

A lot of people have had a bad experience with RRSP's and don’t believe in them, so they don't use them. In my experience the main reasons for peoples bad experience is as follows;

- I lost money in it so I don’t like it. This is because of what you invested in, not the RRSP itself

- I don’t understand what I am invested in, I want to own something I know and understand. This means you need to ask your advisor more about what you are investing in.

- I had to sell some of it, and had to pay a bunch of fees. The RRSP stands for Retirement Savings and it is not meant to be sold off before hand. The government gives you tax breaks to use it, so they will recoup those if you decide to take the money out early. 

Sometimes it makes sense to split some of your retirement savings into a TFSA, using this strategy will allow you to have access to your funds without extra fees/taxes upon withdrawel. If at a later date you decide to move those funds into an RRSP and then you will receive all the tax breaks.

We are all different, and have different ways of investing to meet our financial goals. It is important to have a strategy when investing and even more importantly...sticking to it. As time goes by we may need to change our strategy, for example as we get closer to retirement we may need to reduce the risk in our RRSP to avoid big drops before retirement. 

The RRSP is not the investment, it is the vehicle. It is up to you  and your advisor to pick what investments make sense for you inside that RRSP vehicle.

When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

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