RRSP strategies for today
Feb 4, 2012 / 5:00 am
The right Registered Retirement Savings Plan moves now could be worth thousands of dollars later. This RRSP season, as we face continued economic and market uncertainty, smart strategies can make a huge difference in how much benefit you derive from the tax-deferred investment growth that your RRSP offers.
Here are five strategies for making the most of your contributions.
1. Review before investing
Uncertainty in the markets means that having a good grasp of where you are with regard to your retirement portfolio has never been more critical. These questions can serve as a guide before you make your annual contribution.
- Have your retirement plans changed?
- Is your RRSP’s performance meeting your expectations?
- Is your asset mix still on track, in accordance with your goals, your time horizon, and your tolerance for risk?
- Are you still comfortable with the current risk level of your investments?
2. Don’t pay more tax than you have to
Ensuring that you’re not paying more tax on your investment growth than you should means more money in your retirement pocket. Remember that different investments receive different tax treatment outside your plan. By carefully considering which investments to hold inside and outside of an RRSP, you may be able to increase overall after-tax investment returns.
3. Invest Regularly
Consider working your RSP contribution into your monthly budget by setting up a pre-authorized monthly contribution (PAC). By investing regularly each month you will remove the need to make larger lump sum contributions at the end of the year. As well by investing on a regular basis you are investing smaller amounts over a longer period of time. This spreads the cost basis out over several years, and also provides some insulation against changes in market price.
4. Make volatility your friend
Financial market ups and downs can be unsettling, but there is a positive side to price dips: They provide an opportunity to invest at more attractive prices. But if you’re still uncertain about entering the markets, consider dollar-cost averaging through a regular investment program. It’s a structured way to buy more when prices are low and less when they’re high and it could be a good way to contribute to your RRSP throughout the year, instead of waiting for the annual RRSP “season.”
5. Don’t let uncertainty hold you back
Waiting until you think markets have bottomed to invest, or trying to sell at their peak, can be a mistake. Most investors are terrible at “timing the market,” often buying and selling at the wrong times. And don’t be tempted to “park” your entire RRSP contribution in safe, low-return investments while you wait for a clearer market direction. You may end up still parked while rising financial markets leave your investments in the dust.
6. Consider the benefits of borrowing
In some cases, borrowing to invest in your RSP so that you can take advantage of your contribution room makes sense. Increasing your RSP contributions now offers immediate tax savings this year and tax-deferred growth for many years to come.
If you would like more information or would like a review of your investment portfolio and current financial plan, please call 778-478-9759, or e-mail [email protected]
This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, or life insurance, and should not be taken as providing, investment, financial, legal, accounting or tax advice. All services provided through NorthBay Financial Services. Mutual funds are provided through Sterling Mutuals Inc. Insurance is provided through multiple carriers. The opinions expressed are those of the authors and do not necessarily reflect the views or opinions of Sterling Mutuals Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds and Segregated funds are not guaranteed, their values change frequently and past performance may not be repeated.
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