February is the heart of RRSP season. At RRSP time we spend a lot of time regarding the new contributions that we make but for many, the more important issue is managing the existing money that is in the RRSP.
A recent BMO study suggests that 70% of Canadians have no idea what they are invested in. Now, might be the perfect time to take a look at your portfolio and ask yourself a few questions:
- What was my return last year? A lot of statements provide personal returns but if not if not check out this online calculator for help (thanks to Canadian Couch Potato for the link)
- What do I own and why do I own it? There are good investments and crappy investment out there. It is important to do some research to distinguish between quality and crap. What kind of research is being done in your portfolio. “None” is a very bad answer.
- How many RRSP accounts do you have? Is it time to consolidate to a self- directed account? I’ve seen people with as many as 10 different accounts (accounts, not investments). Depending on what stage of investing you are at, there may be merits in moving to a self-directed RRSP.
- How many investments do you have? Diversification is a very well known principle of investing. The problem for some is too much diversification leads to di-worsification. People with multiple accounts run a greater risk of di-worsification, which is why I like the self-directed RRSP approach.
- What fees are you paying on your portfolio? Studies have shown that fees matter and they do have an impact on your rate of return. Whether you agree or not, it’s important that you know the fees you are paying to see how much of your return is coming out of your pocket.
- What changes should l make to the portfolio? If you’ve answered the questions above, the answers to this question should be obvious.
Using an Advisor
If you use an advisor to help you manage your RRSPs, my advice is to make sure you do not totally disengage from the management of your portfolio. I know your advisor is there to help you but I see too many people blindly trust.
You have a responsibility to be part of your financial affairs including the management of one of your key retirement assets. These questions can form a discussion that you have with your advisor at an annual meeting.
If you take a little time to review these questions, you can’t help but become more engaged in your RRSP. Just remember, nobody cares about your money more than you care about your money. It’s time to care!
Are you happy with your advisor?
If so, great! If not, is it because of service or performance? If it’s because of performance, was the performance because of the markets or something else. In my years in the financial industry, I always caution people in making changes just because of lousy performance that was really caused by the markets as opposed to caused by the advisor. Sometimes it might be the advisor but how would you know if you did not ask yourself the question.
If the problem is service, make sure you are realistic in your expectations. I always tell people to ask about service and communication as part of interviewing financial advisors. Using this checklist can be a great way to help you and your advisor communicate better.