Investing your RRSPs

Every year at this time, every financial institution fights for your RRSP dollars. Investors face more choices than ever. Getting through all this confusion and clutter to make the right decision is no easy task.

Here are some of my thoughts for investing this year:

Fixed income alternatives

  • High-Interest Daily Savings Accounts. For some of you who are busy and unable to make a quick decision, parking money into a daily savings account might be the best temporary solution. In reviewing the best RRSP savings rate, Accelerate Financial has a Daily Savings rate for RRSPs of 2.1%. There are no fees to set up the account, nor are there fees to redeem the account.
  • Guaranteed Investment Certificates. Disillusioned investors are going full circle back to the world of guarantees. While interest rates remain low, GICs could be the best investment to provide peace of mind with capital guarantees. If you plan to go back to the conservative world keep in mind, that not all GICs are the same and it is as important as ever to shop RRSP rates.
  • High Yield Bonds. Junk bonds are making their way into the news again but this time disguised as high yield bonds. While the term ‘junk bond’ may turn you off, remember that everything goes in cycles and the world of high yield bonds may have some merits. High Yield Bonds (HYB) come in many different shapes and sizes. Typically, HYB is bonds offered by corporations and the yields today are up to 10%. Remember that the higher the interest rates on the bond, the higher the credit risk of the corporation. The key to high yield bonds is to understand credit and price risks. You may want to leave these decisions in the hands of a good mutual fund manager.

Moderate risk

  • Balanced Funds. Balanced funds are a great middle ground. With so many confusing outlooks by both the pessimists and the optimists, a balanced approach could provide the security of fixed income but the growth potential of participating in a rebounding market.
  • Dividend Investments. Historically speaking, dividend-paying investments have been a great way to participate in equity markets in a more conservative way. Dividend-paying stocks are usually blue-chip companies that you have all heard of before. They are more conservative because they are equity investments with some characteristics of fixed-income investments. You can buy individual dividend stocks on your own, a portfolio of dividend stocks through a dividend fund or some Exchange Traded Fund (ETF) versions.

Higher risk

  • Global Equities. With all the negative publicity of markets, it is hard to understand why anyone would invest in world markets. The reality is we may be sitting on a great investment opportunity. Global markets have underperformed against the Canadian market for quite some time because of a strong Canadian dollar. For anyone who believes that markets go in cycles, the global markets may be a contrarian view for your RRSP dollars.

My two cents

Whether you are conservative or aggressive, there should be something on my list of ideas for the RRSP season. While many investors are turning to the more conservative investments this year, remember that money is often made by doing what most people are not doing.

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