Once you’ve started contributing to your Registered Retirement Savings Plan (RRSP) and funded it with investments appropriate for your needs, you might think you’re in good shape and that your RRSP is now on “autopilot.” But that type of thinking can actually be counterproductive, because to get the maximum benefits from your RRSP, you’ll need to revise it over time to reflect changes in your life and in the investments that make up your plan. That’s why it’s a smart move to review your RRSP holdings annually — and when this year is winding down is as good a time as any to see what you’ve got, where you’ve been and where you might be headed.
What should you look for when you review your RRSP? First and foremost, make sure you’re saving enough to help reach your retirement goals — or that you’re at least putting away as much as you can possibly afford. Next, evaluate whether your investment mix is still suitable for your individual goals, risk tolerance and time horizon. You might be surprised at how much your holdings can “evolve” without your having done anything to them. For example, during long bull markets, the value of your RRSP’s stock-based accounts may have risen substantially, and you might find that these accounts now make up a greater percentage of your portfolio than you had originally intended. As a result, you’re now taking on more risk than you’d like. Conversely, during a bear market, the percentage of conservative investments in your plan — such as bonds and other fixed-income vehicles — may grow to such an extent, relative to your stocks, that your RRSP may not be providing you with the growth opportunities you need to pay for the retirement you’ve envisioned. To prevent either of these scenarios, you may need to periodically “rebalance” your RRSP.
Your life’s circumstances provide you with another reason to review your RRSP’s investment mix. When you begin your career, you may decide to invest more aggressively in your RRSP because you have many years to go until you retire. Consequently, you have time to potentially overcome the “down” markets that will inevitably occur. But as you get closer to retirement, you obviously have fewer years to make up for lost ground, so you might decide to lower your risk level by shifting some of your assets out of stock-based accounts into more conservative ones. Still, you could be retired for two or three decades, so you will still need some growth elements in your RRSP to help stay ahead of inflation.
So, review your RRSP at least once a year and make changes whenever necessary — but don’t go overboard. By making the right moves at the right time, you can help ensure that your RRSP will be a key element of your retirement savings.
Kevin Dorey is a financial advisor with Edward Jones. Based In Tantallon, Kevin specializes in helping individuals reach their serious , long-term investment goals. He can be reached at (902) 826-7982 or firstname.lastname@example.org. Edward Jones is a member of the Canadian Investor Protection Fund