What do you do about your RRSP when the whole world seems to be going crazy? The answer is simple: ignore all the background noise and carry on as before. Your RRSP is going to be around a lot longer than Donald Trump!
I admit it's not easy to tune out everything that's happening in Washington. Not a day goes by without some Trump pronouncement grabbing the newspaper headlines and the lead slots on the television news.
And it's true that some of his words and actions are going to have a negative effect on stocks. The turmoil that followed his immigration order riled the markets, with the Dow recording triple-digit losses for two straight days after it was proclaimed and courts weighed in on its legality.
But all this will pass. Pension fund managers never worry about the day-to-day movements of the indexes; they focus instead on investing in sound, long-term securities. Your RRSP is simply a small pension plan so you should adopt the same psychology.
Here are some tips on how to get the most out of your RRSP, this year and every year.
Review your asset allocation. You should have established a target asset mix when you set up your plan (if you didn't, do it now). This is a good time to review it.
For starters, go through your portfolio and allocate each security into one of three categories: cash, fixed income, and growth (stocks). In the case of balanced funds, check how their assets are distributed and apportion them in your portfolio accordingly. For example, you may have a fund that is 50 per cent in stocks, 45 per cent in fixed income, and 5 per cent in cash. The allocation in your RRSP should follow the same pattern.
Once that is done, review your overall portfolio mix. Since 2016 was a good year for stocks, you may find the growth portion is a little top-heavy for your risk level. That can be corrected in two ways: either by adding new money to your fixed income or cash positions, or by selling some stocks or equity mutual funds and moving the money into the other two sectors.
It is essential to complete this review before you make any decisions on where to invest this year's RRSP contribution. The result will guide your decision as to what type of investments to consider.
One more thought. The closer you are to retirement, the more conservative your asset mix should be. Stocks have been very strong in the past few years but the market looks expensive at this point. If retirement is only a year or two away, you don't want too high a percentage of your assets to be at risk in the event of a crash.
Invest for the long term. I have an acquaintance that recently invested $15,000 in a penny stock in his RRSP. The stock jumped more than 250 per cent in just 10 days and the value of that investment soared to almost $40,000! True story!
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