How do I open an RRSP for dividend-paying stocks?

Dear Nancy,

I have some money from a pension that I can transfer to an RRSP. It's from working in construction a long time ago and I would like to put it in a self-administered RRSP and buy dividend-paying stocks.

I'm new to this so I'm looking for advice on how I go about setting up the self-administered RRSP and how I sign up once I buy the stocks to have the dividends reinvested. I probably sound like a babe in the woods but I would like to try investing on my own and get some experience.

Any advice?

Thanks

Terry

Dear Terry,

You can open an RRSP at an on-line or a full-service brokerage house. I recommend these options, rather than a bank, because you specifically mention that you want to buy stocks.

Where you do it should be dependent on whether you are looking for advice in planning your portfolio and selecting the holdings or not. Also, find out which is more cost-effective for you. The transaction costs are going to be higher for the full-service brokerage than the on-line brokerage because you are paying for additional advice. If you are able to make the decisions on your own, then an on-line account is the way to go.

You mention planning to reinvest the dividends from the stocks you plan to buy. This is an excellent idea when your goal is to grow the funds rather than use the income. This is a good way to dollar-cost average and benefit from the power of compounding. It will allow you to acquire more shares over time without incurring any transaction costs.

Most on-line brokerages have the capability to enroll stocks into a dividend re-investment plan; however it is usually only large-cap, actively traded ones. They also only purchase whole shares, not fractional ones. You can get a listing from whichever company you choose to open your RRSP with.

There are on-line sites where you can set up virtual trading portfolios and practice your investment abilities without risking your money. Trading with cyber money maybe a way for you to gain experience and "learn the ropes".

Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com

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