RRSP contributions should reinforce, not rearrange, your portfolio strategy
Are you looking to make a lump-sum contribution to your Registered Retirement Savings Plan (RRSP) this year? Maybe a top-up to increase a potential tax refund? Considering a loan to catch up on a backlog of unused contribution room? Any one-off event like this can encourage us to go off-track when it comes to our portfolio strategy. We might consider this an ideal time to try something new or follow a trend we have noticed in the media. By doing so you can be getting in the way of your own success. Here’s why.
Remember that the strategy of your RRSP is designed to get you the returns you need in order to have the income you desire in retirement. Your portfolio’s investment mix takes your individual tolerance for risk into account and is diversified to maximize return potential while minimizing the risk of any single investment or investment type. An ill-conceived investment can upset that well-considered balance. If you’re tempted to stray from this optimized approach, consider one of these two alternatives:
Apply new money to your current mix – for now. This is the status quo option. Simply apply this year’s contributions to the current set-up, maintaining the existing proportions for now. At your next portfolio review, consider any new investment ideas in the context of your goals and risk profile and rebalance accordingly.
Park your money. If the above option doesn’t appeal to you this year, you can simply “park” your money by putting it into very safe or ultra-conservative investments for now. When you are ready for a portfolio review, consider new ideas and investments with your goals in mind and make any investment decisions prudently, not in haste.
Your RRSP is one of the most powerful tools available to reach your retirement goals. It’s always worth taking the time to review your contribution plans as well as your investing strategy. We are here to help with either or both when you’re ready.