How to manage your group RRSP

There was a time when no one worried about how the money in their pension plan was invested. A professional organization was hired to handle those details. Every so often plan members received an unintelligible report that was supposed to keep them up-to-date on their plan’s progress.

Members of defined benefit pension plans are still in this kind of situation today.

But if you are part of a money purchase plan or a group RRSP, it’s a different story. Increasingly, you’re being asked to direct the placement of your retirement savings yourself—in other words, to assume responsibility for managing your investment portfolio.

Not expert investors
Many people are ill-equipped to do that. They’ve never been taught about investing, and they become nervous when anything more complicated than a GIC is mentioned.

Suddenly they are being asked to construct their own investment portfolio from a number of available options. If they get it wrong, the cost will be high in terms of lost retirement income.

Since every plan has its own investment options, it is impossible to draw up an ideal portfolio mix that can be applied acrosthe board.

However, here are some basic guidelines to use if you’re required to make this kind of decision.

Investing guidelines:
Rule 1: Understand all the choices.
Typically, you’ll be offered several types of securities from which to choose. These may include several mutual funds and some GIC options.

If you don’t understand any of them, insist on a detailed explanation before you make any decisions. Some employers offer special seminars so that employees can get answers quickly and easily.

But if your organization doesn’t, ask for a meeting with the plan administrator and don’t leave until you’re satisfied.

Rule 2: Check the performance history of any funds being offered.
Chances are you’ll be asked to choose from a number of “pooled” funds. These are mutual funds that are limited to a specific group (such as your company’s employees). So you may not find any performance figures for them in the business press. Ask for numbers.

You want to see both short- and long-term figures. Then compare the results with those of publicly available mutual funds in the same category. See which ones are out-performing the averages. Those should be among your leading candidates.

Rule 3: Decide on an asset allocation.
Before you invest a penny, work out how you want to allocate your money.

If you prefer to be aggressive and you’re relatively young, put more emphasis on the equity side.

If you’re older and/or more conservative, beef up the fixed income side of the portfolio.

Next page: Rule 4: Check out the foreign content.

Rule 4: Check out the foreign content.
See if any of the funds you’re offered fall into the foreign content category. It would be nice if one or two do, as this will allow a degree of geographic diversification.

Just remember that your foreign content limit cannot exceed 30 per cent.

Rule 5: Consider the investment climate.
If times are good and there is no sign of inflation on the horizon, you can afford to be a little bolder in your equity weighting.

If we’re heading into a recession, fixed income securities, such as bond funds, will probably do better because interest rates tend to fall in bad economic times.

Rule 6: Consider a balanced fund.
If you don’t want to spend a lot of time figuring everything out, put your money into a balanced fund. It will give you exposure to both stocks and bonds, and carries less risk.

Rule 7: Review your portfolio periodically.
You need to keep on top of what’s happening with your money. Read each statement carefully. If there are any discrepancies, report them to the plan administrator immediately.

That’s it. If you follow these seven rules, you’ll find that managing your retirement savings program isn’t all that difficult.

Plus, you’ll be in a much better position when it comes to calling the shots on your personal RRSP or non-registered plan.

From Retiring Wealthy in the 21st Century, by Gordon Pape, published by Prentice Hall Canada.