Investing your RRSP money
Investing your RRSP money
Don't let roller coaster markets push you off track
The RRSP contribution deadline of February 29, 2008 has come and gone, and you may still be recovering from the rush of making a last minute RRSP contribution. With recent talk of a U.S. recession, market meltdowns, and roller coaster stock prices, you may also be waiting for a better time to invest your contributions in something other than a safe, low-yield money market fund or GIC.
Here's the scoop. There is no better time. It's true that if you've been following recent market news, or tracking your investment portfolio, it may not feel like the best time. As the chart below shows, the movement of the Canadian stock market over the past few months truly has been a roller coaster ride of ups and downs.
Source: GlobeFund
But history has demonstrated time and again that markets will rebound. And if you keep your money parked on the sidelines in low-yield investments, you'll miss out on a substantial part of the gains when markets recover.
When reading the doom and gloom of today's headlines, remember two things:
- Bad news sells, and negative investment news will always be prominent - even in rising markets. It may never feel like a good time to invest if you follow investment stories regularly.
- Headlines reflect short-term events. Saving for your retirement is a long-term project that demands a long-term perspective.
The chart on the next page shows how the Canadian stock market has performed over the past few decades. When you take a step back and consider a longer-term market view, you should gain some comfort from the upward trend.
Source: GlobeFund
That's why it's important to continue investing your RRSP money according to your long-term plan. While holding cash and cash equivalents can be useful for saving for short-term goals, their relatively low returns combined with the effects of inflation make this a poor long-term strategy.
If you have an investment horizon of more than five years, you should ensure that your RRSP contribution is working towards meeting your long-term financial goals. And for most people, that means maintaining a diversified portfolio that contains at least some longer-term growth investments.
With so many world stock markets slumping, this is a great time to follow one of the oldest pieces of investment advice - buy low and sell high. If you invested your recent RRSP contributions in short-term investments, take advantage of the opportunity that lower prices present today, to invest in funds with a longer-term growth potential.
Boost RRSP contributions if you can
If you still have unused RRSP contribution room, there are two ways that you can take further advantage of the recent market decline:
- Top-up your RRSP. If you have the ability to make a lump sum contribution, this is an excellent time to boost the amount you can invest at today's lower prices. Contributing a lump sum amount also gives you a head-start on your 2008 RRSP contributions and ensures you place a priority on your retirement savings before you spend the money on something else. And don't forget, every dollar you contribute will be deductible on next year's tax return, so a contribution today may provide you with extra cash at your disposal in 2009.
- Increase amount of ongoing RRSP contributions. If you make regular contributions to a group RRSP by payroll deduction, consider increasing your contribution amount, subject to your personal RRSP contribution limits. You'll have more money invested and working for you earlier in the year, and you may be surprised at how little you miss the additional money that you are now investing.
Understand the investment mix that's right for you
While a diversified portfolio of stock, bond, and cash investments is ideal for spreading the investment risk over many types of investments, the allocation that you give to each type of investment will depend on your personal situation and will include the length of time you have to invest and your tolerance for the ups and downs of the investment market.
You may have already determined the investment strategy that's right for you, but if you haven't done so, or it has been a few years since you last looked at your investment strategy, Sun Life Financial's Investment risk profiler is a great place to start with a portfolio reassessment. To access the Investment risk profiler, just sign in to www.sunlife.ca/member and on the Home page, under my financial future, select my info Café for your applicable account. Then:
- Under the Resource Centre drop-down menu, select my money tools
- Under the Asset allocation tool, select Continue to proceed to the Investment risk profiler
