Skip to main content
The Globe and Mail
Get full access to globeandmail.com
Support quality journalism
Just $1.99 per week for the first 24weeks
Just $1.99 per week for the first 24weeks
The Globe and Mail
Support quality journalism
Get full access to globeandmail.com
Globe and Mail website displayed on various devices
Just$1.99
per week
for the first 24weeks

var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){console.log("scroll");var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))}pencilInit(".js-sub-pencil",!1);

Right now, many Canadians are asking themselves some variation of this question: “What’s the perfect RRSP investment?”

The short answer is none. There are flaws in every security you might consider for your registered retirement savings plan, from low return to high risk. But there are many that offer a reasonable combination of risk and return, and that’s where you should focus your attention. What should you look for? Here are four guidelines to work with.

Long-term performance

This should be your starting point. The financial industry is legally required to tell you that previous results are no guarantee of future returns. That’s absolutely true, but they’re the best indicator available of what to expect, assuming consistent management.

Story continues below advertisement

I suggest that any equity-based security that boasts an average annual return of 8 per cent or more over the past 10 years is worth considering. For a balanced mutual fund or exchange-traded fund, a 6-per-cent average annual growth rate is a fair benchmark. If you’re looking at fixed-income investments, a range of 4 per cent to 5 per cent is reasonable.

The RRSP deadline is March 2: What you need to know about saving for retirement – and building a financially secure future

Consistency

Your ideal investment should have a degree of predictability. Unless you invest in a guaranteed investment certificate, you shouldn’t expect the same return every year. But you want to avoid securities with wild price swings. High volatility will raise your stress level and could lead to emotional buy-sell decisions, which often turn out badly.

Balanced mutual funds or ETFs are usually good choices for consistency. Among stocks, look at well-established utilities, such as Fortis Inc.

Fees

Some people regard costs as the No. 1 criterion in selecting securities. If it’s too pricey, they don’t buy – period.

It’s true that high fees can erode your returns over time. Discount broker Questrade estimates that, over 30 years, a 1-per-cent differential in fees will make a difference of 27 per cent to 29 per cent in the end value of a portfolio.

But that’s all things being equal. If an actively managed mutual fund consistently outperforms a passive ETF, it’s worth the extra expense.

To cite one example, the Mawer Canadian Equity Fund generated an average annual return of 10 per cent over the decade to Dec. 31 with a management expense ratio of 1.16 per cent. The iShares Core S&P/TSX Capped Composite Index ETF produced a return of 6.77 per cent annually over the same time frame, even though its MER is a tiny 0.06 per cent.

Story continues below advertisement

So yes, costs are important. But they aren’t the whole story.

Risk

Warren Buffett’s first rule of investing is, “Don’t lose money.” The billionaire investor’s second rule is, “Never forget rule No. 1.”

This holds doubly true for RRSPs. Any money lost within the plan cannot be replaced. It’s gone, and the years of tax-sheltered compounding it would have generated are gone as well.

That’s why it’s important not to use your RRSP to speculate. If you want to buy penny stocks or invest in what you think is the next great tech startup, do it in a non-registered account. At least if you lose there you can write off the loss against any capital gains. There are no write-offs for RRSP disasters.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies