Which type of investment is right for your RRSP?

So you’ve come up with some cash for your RRSP. Now, where should you put it?

To help you figure out the best investments for your retirement savings, we’ve put together a sort of Coles Notes on some popular investments to hold inside your RRSP, from least to most risky.  

Guaranteed Investment Certificates
Money you put in GICs earns a specified rate of interest for a specified term, or period of time. When that time is up, you can roll the money into another GIC or move it into a different type of investment.
Consider it when: You’re short on time.
How to: Buy GICs through financial institutions; get them at a branch, over the phone or via Internet through pcfinancial.ca and other online banks.
Upside: You’ll know exactly how much your investment will earn (except with market-linked GICs; skip those); GICs are safe – up to $100,000 of your money is insured by the government.
Downside: The rate of return is low (around 1% to 3% per year), and you’ll likely need to invest at least $500.

High-interest savings account
Many financial institutions offer RRSP-eligible savings accounts, which are similar to your regular savings account.
Consider it when: You don’t have much time or cash to devote to your RRSP.
How to: Ask your bank about options; open an eligible account through an online bank like ingdirect.ca.
Upside: Minimum deposit is usually low; you know how much you’ll make on your investment; and your money is totally safe, with up to $100,000 insured by the government.
Downside: The rate of return is very low (around 1.5% annually); with some accounts, service fees can eat away at your savings.

Are Investment-grade bonds, mutual funds or stocks right for you? Find out on the next page>

Investment-grade bonds
Bonds are money you invest in a government institution or a corporation. At a specific date, you can redeem them for your money back, plus interest.
Consider it when: You want your money to grow steadily and predictably; you don’t want to take risks.
How to: Many government bonds are sold through financial institutions; buy corporate bonds through a full-service or discount broker.
Upside: You’ll find plenty of interest rate and maturity date options.
Downside: You may need to make a minimum investment of $5,000; the interest you earn may not keep pace with inflation.

Mutual fund
A mutual fund is a basket of investments you can buy in one step. Different funds have different mixes of cash, stocks, bonds and other investments.
Consider it when: You want exposure to different investments, but don’t have time to fuss with them.
How to: Buy through financial institutions, mutual fund dealers like Investors Group or an online bank.
Upside: With so many funds to choose from, you should be able to find one to suit your goals and risk tolerance.
Downside: Fees can eat up a large chunk of your return; mutual funds aren’t guaranteed – you can lose money.

Stocks (equities)
A stock is a fraction of ownership in a public company.
Consider it when: You’re several years from retirement and are comfortable taking some risks with your money.
How to: Buy equities through a full-service or discount broker.
Upside: Equities can complement lower-risk RRSP investments and potentially boost your return.
Downside: Stock markets are unpredictable; you don’t know what will happen with your investment.

Wondering if you should borrow money to invest in an RRSP? Click here for advice.

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