At this time of year the big banks start ramping up their marketing for RRSPs. If you have waited until the last minute, like many Canadians, and make a phone call to your local branch to buy RRSPs, you must first ask a few questions to yourself before going ahead with the transaction.
- Are you only buying RRSPs because you can get an income tax return?
- What will you invest your RRSPs into?
RRSPs are a vehicle to differ the taxes on your investment until you pull them out.The investments held within a protective tax bubble can grow tax free, allowing the investment to compound itself
and grow much faster than if the gains were taxed.
Many Canadians believe that buying RRSPs is a smart way to save for retirement.The act of buying RRSPs will usually provide you with a tax return, however that is not enough. Before transferring money into your RRSP account, decide what you will invest those RRSPs into. Banks make it easy to pick from a list of mutual funds, and a professional will manage your money for you so you don’t need to think abut it anymore. Before buying mutual funds, or another bank supported (and heavily promoted) product, determine who’s best interest these products are catered towards
How does the bank make money from you? Fees.The banking industry in Canada has done an excellent job of masking these fees, which will have a dramatic effect on the final value of your RRSP account.
Most Canadians are unaware of other investments that are eligible to be held within their RRSP account. Before you purchase hidden fee mutual funds, consider investing in an arms-length mortgage.When you invest in
something like a stock or mutual fund, they all have disclaimers saying past performance does not guarantee future performance. When you invest, make sure you are truly investing and not speculating.When you are guessing or counting on unknown variables, you are speculating. Investing is based on concrete facts.That is what I like best about arms-length mortgage investing. It’s predictable to the penny how much your RRSP account will be worth 3 years from now.You can easily and safely earn double digit returns, no matter what else is going on in the economy.
A banks major business is mortgages. 99% of Canadians pay their mortgage on time. Banks do not like risk, that is why they are in the business of mortgages.You can become the bank, and start earning fee free, double digit and predictable returns on your RRSPs in an arm’s length mortgage.
As always, do your due diligence. If you consult the advice of a financial planner, make sure they provide fee based advice, instead of getting paid from the built-in fees of their own products.This way you ensure that the advice given is in your best interest.