Where should I put my RRSP?
- February 24, 2008 by Fox | Comments: 4
I’ve gotten a few questions from friends and readers asking me “Where should I put my RRSP?” Since I’m a manic maxer and contribute fully to my retirement plans in January, I kinda forgot the RRSP deadline is this Friday (February 29th, 2008). But to help you out, I’ve listed some RRSP options for various types of investors. My first choice is to “do it yourself” by investing in Index Funds or ETFs. The second option is to invest with a low cost mutual fund family. If more time is needed before investing your RRSP bucks, take a breather by parking your contribution in an RRSP high interest savings account. The investment choices are many, just be sure to get your investment in before the deadline or you won’t get the tax break.
1. Invest It: index funds or ETFs
Yes, I know I keep squawking about index funds and exchange traded funds (ETFs), but I truly believe tracking an index is the most cost effective and wisest way to invest one’s dollars. Simply put, you cannot underperform an index and this form of passive investing keeps costs low. I figure since I index, I will not be paying an expensive mutual fund manager to sail a yacht whist pretending to have market clairvoyance.
I’ve written an article describing the differences between Index Funds and ETFs. I’ve also reviewed and compared two very popular index funds in the article: ING Direct Streetwise Funds Vs. TD Index e-Series Funds. Indexing is easy, cheap, and smart. I’ll stop squawking about indexing, for now.
2. Invest It: low cost mutual funds
If you’re really not interested in indexing and investing for yourself, then perhaps invest in a diversified portfolio of low cost mutual funds. This form of active management won’t cost (anywhere near) as much as the “big bad banks” or all those companies who constantly advertise on TV. In fact, you’ve probably never heard of the mutual fund companies I am about to list. The truth is some mutual fund companies actually want to keep costs low for investors, and choose not to advertise for this reason. I figure, why should I invest my retirement dollars with those banks and fund companies just to pay for their advertising? Forget it! Here are some awesome options:
- Phillips Hager & North: Depending on the selected fund series, you’ll need a minimum of 5K to start an account at PH&N. I’ve been an investor at PH&N for several years and have loved their high-level of customer service and LOW fees. Recently, the Royal Bank of Canada (RBC) bought PH&N, so who knows what will happen to fees in the future. Sigh. For a comparison, their Balanced Fund costs 0.88% per annum.
- Leith Wheeler: Since 1982, Leith Wheeler has provided Canadians another option in no-load, low fee mutual funds. To start investing here you’ll need 10K to open an account. For a comparison, their Balanced Fund costs 1.10% per annum.
- Saxon Funds: Of the three fund companies listed, Saxon Funds is the most expensive no load, low fee mutual fund company. To begin investing you need 5K to play. For a comparison, their Balanced Fund (F-Series) costs 1.18% per annum.
3. Park It: high interest savings account
Sometimes you just can’t decide where to invest your retirement dollars. For those of you looking for a liquid and risk-free place to park some cash, perhaps consider renting a spot in a high interest savings account. Don’t stay parked in these spots too long though as investment savings accounts barely beat inflation in the long term. Here are three of my favorite savings accounts:
- PC Financial: President’s Choice Financial offers an “Interest Plus RRSP Savings Account”. You will need to maintain a balance of over $1,000 to get PC’s best interest rate and an anniversary bonus.
- Achieva Financial: Maybe you haven’t heard of Achieva Financial? Well, let me introduce you to this division of Cambrian Credit Union in Manitoba. I’m not sure what’s in the Manitoban water, but credit unions in this fine Canadian province boast the highest interest rates in the country. Achieva’s “RRSP Savings Account” is an awesome option for those who want the best interest rate on parked retirement cash.
- ING Direct: The big orange machine that is ING Direct Canada hasn’t been too competitive with their interest rates in the past few years. They do offer an “RSP Investment Savings Account (RSP ISA)” for those who like the color orange though.
View all current interest rates before moving money to a savings account.
Happy RRSPing!
fox
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Comments:
I am a little confused why you didn’t recommend ING’s Streetwise Fund for RSP investing knowing that is has lower fees (1%) than 2 of your recommendations.
It was a good read nonetheless. Thanks!
Tony A.A.: ING’s Streetwise Funds are mentioned under point 1. Invest It: Index Funds or ETFs. I’ve also written numerous articles on ING’s Streetwise offering, which are linked into this section.
I am a huge fan of Index Funds and ETFs. Which is why I wrote this statement above: I truly believe tracking an index is the most cost effective and wisest way to invest one’s dollars. Simply put, you cannot underperform an index and this form of passive investing keeps costs low.
I write about mutual funds in the second part of this article since some people don’t want to index, for whatever reason. I hope this helps.
There is a big downside to initially parking the RRSP funds in high interest savings accounts for short term and later using them to buy ETF or MF. Most institutions will charge upwards of $100 to transfer the RRSP. So it is important to pick the institution and investment type carefully!