Stock Market: How to Build a Winning RRSP

Businessman looking Financial Charts on laptop.

According to a recent survey, 69 per cent of Canadians plan to contribute as much or more to an RRSP this year compared to 2020. Photo: Photo: GettyImages/guvendemir

Despite the economic damage inflicted by the pandemic, 69 per cent of Canadians plan to contribute as much or more to an RRSP this year compared to 2020. That’s the conclusion of a recently published survey conducted for Questrade by Leger 360. Moreover, it appears people are paying closer attention to their plans.

“This year, during the pandemic, Canadians have become much more engaged in managing their investments and like most other things, are looking to do it increasingly online,” says Stephen Graham, Questrade’s chief operating officer. “They also are more focused on ensuring they are saving and investing for the future with 50% of Canadians saying they are more likely to invest for the long term this year.”

So, what exactly does that entail? Here are some tips for successfully managing your RRSP.

Choose Your Investments Carefully

An RRSP is your own mini-pension plan. Manage it accordingly. Investments should be chosen based on a thorough risk/return analysis. That means avoiding high-risk securities. Ignore your cousin when he tells you Golden Egg Mines, trading at five cent a share, is going to be a huge winner. If you want to gamble, do it in a non-registered account where at least you can claim a capital loss if things go wrong.

For your RRSP, stick with securities that have a proven track record for consistent returns and below average volatility. If you plan to invest in stocks directly, look at utilities and telecoms for reasonable prices, cash flow, and slow but steady growth. High-quality tech stocks like Microsoft and Apple should be considered for enhanced growth potential. ETFs and mutual funds should be selected based on above-average historical returns, reasonable cost, and low volatility.

Manage Your Asset Mix

Every pension plan holds a mixture of cash, fixed income, and growth securities. Yours should be no different. The decision you have to make is what proportion of each asset class to own.

Generally, the younger you are, the more your RRSP should tilt towards growth. So, for example, people in their 20s might want to hold a mix of 80% growth, 15% fixed income, and 5% cash. By contrast, someone approaching age 65 may be more comfortable with 10% cash, 40% fixed income, and 50% growth. The increase in the cash/fixed income components limits downside risk.

There’s a debate right now as to whether to even hold fixed income securities (e.g., bonds) in an RRSP. With interest rates so low, it’s a certainty bond prices will drop when central banks reverse course and start to tighten. But I have yet to see a loss in bonds that comes close to the plunge we saw in stocks in 2008-09 or last March. Bonds provide stability and downside protection when equities tumble.

Keep Costs Low

Frequent trading costs money, unless you have a commission-free trading account. So do high-cost mutual funds and ETF fees. Over time, they’ll bleed thousands of dollars from your RRSP.

“The research also illustrates the increasing importance of lower fees,” says Mr. Graham. “With a large number of Canadians investing more in an effort to find significantly better returns, 44% of them say they are now actively looking for investments with lower fees. Canadians are beginning to realize just how a 1% reduction in fees can significantly impact their long term returns which has grown interest in both self-directed investing and portfolios of ETFs as alternatives to mutual funds.”

However, when looking at fees it’s important to weigh cost and return. Some higher cost mutual funds and ETFs consistently outperform their peers over time. Cheap doesn’t always mean better. Look carefully at the net returns over several years before making a decision.

Diversify Globally

Canadians tend to be homers when it comes to investment decisions. That may be patriotic but it’s not very smart if you want to maximize RRSP growth.

Let’s be realistic. In global terms, the TSX is a backwater, comprised mainly of financials, materials, and energy. Over the 10 years to Jan. 31, the iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC) generated an average annual compound rate of return of 5.53%. Over the same period, the iShares Core S&P 500 Index ETF (CAD-hedged) (TSX: XSP) averaged 12.35%, more than double. I rest my case.

Watch the money. Too many people see their RRSP as a once-a-year event: deposit some money in February, claim the tax deduction in April, then wait until next year and repeat.

That’s no way to manage your retirement nest egg. A lot can change in the markets over a year, as we’ve just seen. It’s important to be aware of what’s happening with your RRSP. Review it on a regular basis (at least once per quarter) and make any adjustments that are consistent with your overall plan. 

Don’t overreact. There will be good years and bad years. Don’t be overly influenced by either. Selling in the midst of a market dive will simply lock in your losses and make it more difficult to recover – panicked investors tend to sit on their cash out of fear, missing part or all of a market rebound.

Conversely, buying aggressively when markets are frothy, as they are now, may expose your RRSP to greater risk. These are times to sock a little more into the cash segment of your assets so there will be money available to take advantage of pullbacks.

Successful RRSP management requires time and commitment. The pay-off will be more money – perhaps a lot more – to enjoy in retirement.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to