Last week in our wealth management column we covered TFSA vs RRSP and how to use them together to help maximize your savings. This week I wanted to go more in depth with some of the options available in the RRSP as the deadline is quickly approaching.
The deadline to contribute to your RRSP for the 2019 tax year is March.2/2020. The contribution limit for the 2019 tax year is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $26,500 plus any carry forward room you may have had from previous tax years.
There are a wide range of investments you can hold in your RRSP. They include GIC's, bonds, stocks, mutual funds and segregated funds.
GIC's (guaranteed investment certificates) are an option where you choose your term from 1-5 years and your rates are locked in for that term. Our rates are currently running from 2.19%-2.8%. The advantage of this type of investment is it is guaranteed and you can't lose you principle. I would say generally that the closer you are to retirement the less risk you should be taking with your investments. So this product would be best suited if you are within and few years of retirement and beyond.
Mutual Funds and Stocks are investments where you buy shares or units of various companies and the price fluctuates daily. You never lose the shares or units that you buy: just the price of them is constantly changing. These investments are not guaranteed and more risky but do offer a potential for higher returns than GIC's. A balanced mutual fund could potentially return you 5-10% over the long run. Again generally speaking this is the type of investment I would recommend for people that have longer time horizon, say people in their 20s, 30s, 40s, and 50s. Many people hold these types of investments in retirement as well. It all depends on your risk tolerance.
Segregated Funds are an investment fund that combines the growth potential of a mutual fund with the security of a life insurance policy. Segregated Funds are often referred to as "mutual funds with an insurance policy wrapper". So they offer some guarantees with the potential of higher returns.
It is always a good plan to diversify and there is no one option that is best; it really depends on each individual investor. Many people we deal with own GIC's, stocks, mutual funds and segregated funds. We can put together a portfolio that encompasses all of these products.
For more information on RRSP contribution options give our office a call at (204) 877-3541.
Andrew Agencies Ltd.