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.
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.
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.
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.