If you made this year’s February 29 RRSP contribution deadline, congratulations!
If, like many Canadians, you parked your money in a savings account — possibly alongside the contribution from last year, and the year before that — you’re missing out on a big opportunity. To get your RRSP up to speed, you need to consider moving your contribution into an investment that can provide greater growth potential.
Risk and Return
At the heart of every investment are two characteristics: risk, or the potential to lose some of the original investment, and the potential for returns in the form of interest, dividends or increased value. And the two are linked: the lower the risk, the lower the return tends to be.
So if you want to earn more than the 3% or 4% available in a savings account, you have to be willing to accept the risk that your investment will fluctuate in value. Fortunately, there are several effective ways to manage that risk.
Focus on the long term. Equity markets go up and down all the time. Over the long term, however, the trend historically has always been upwards. The key is to stay invested through downturns or periods of uncertainty so you can benefit from the higher returns over the long term.
Don’t overlook the effect of inflation. The problem with low-risk investments is that they may not provide you with enough growth to keep you ahead of inflation. If you’re earning 3% and the cost of living is increasing by 3%, you’re just barely breaking even in terms of purchasing power.
Choose investments you’re comfortable with. Even if your risk tolerance is low, there are many ways to increase the growth potential of your RRSP savings. Mutual funds and managed portfolios, for example, offer management expertise and diversification that can help reduce risk while providing greater potential for returns than a savings account.
Put your RRSP into High Gear
Talk to an RBC advisor about how you can position your RRSP for growth. Together, you can review your time horizon, risk tolerance and investment goals to formulate an RRSP strategy that’s right for you.
Mutual Funds are sold by Royal Mutual Funds Inc. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Please read the Fund Facts before investing. Mutual fund securities are not guaranteed or covered by the Canada Deposit Insurance Corporation or by another government deposit insurer. For funds other than money market funds, unit values change frequently. For money market funds, there can be no assurances that a fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in a fund will be returned to you. Past performance may not be repeated. Financial planning services and investment advice are provided by Royal Mutual Funds Inc. Royal Mutual Funds Inc., RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. Royal Mutual Funds Inc. is licensed as a financial services firm in the province of Quebec.
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