Stingy Investor Search - Contact - Subscribe - Login
  Home | Articles | Links | SNW
It's RRSP season, but don't panic

Yes, it's RRSP season and high time to consider reducing this year's tax bill. If you are like most Canadians then you'll deal with your RRSP at the last possible moment. Unfortunately, making rushed RRSP decisions can be dangerous. For instance, it is important to avoid buying securities that lock you in for a long time such as mutual funds with deferred sales charges. Similarly, trying to figure out which stocks to buy at the last minute is a recipe for disaster. Instead, RRSP investors should take Warren Buffett's advice to heart and remember that "The stock market is a no-called-strike game. You don't have to swing at everything -- you can wait for your pitch.". In the end, it is better to take the time to make good investment decisions.

To avoid the last minute RRSP panic, simply put new money into high-yielding short-term debt. Good old GICs, high-interest savings accounts and treasury bills are all possibilities. Fund investors should consider the PH&N Canadian Money Market Fund or the Perigee T-Plus Fund. Both funds have superior track records due to able management and low fee structures.

Keep in mind that there is a price to be paid for waiting in short-term bonds. Short-term bonds generally yield less than long-term bonds and inflation can errode your returns. For instance, if your GIC pays 2% but inflation comes in at 3% then, at the end of the day, your effective buying power is reduced by about 1%. Look at it this way, a year of 2% gains turns $100 into $102. However, if inflation is 3% during the same period then a $100 Christmas goose turns into a $103 expense. You would have to pony up an extra $1 to buy a similar goose next year. As a result, short-term bonds are a good place to store money until you can take the time to consider more complicated investments.

Once you've dealt with this year's RRSP contribution then you'll have the luxury to plan for the long-term. When it comes to long-term planning it is important to formulate a personal investment policy. Many investors don't have an investment policy which is a shame because it is a valuable tool that can save a lot of money. An investment policy starts out by describing an investor's financial situation, goals, constraints, and risk tolerance. It then moves on to formulate an investment strategy that can accomplish these goals. Investment policy is all about big-picture planning and strategy. Most importantly, a written policy statement is a useful guide for both investors and advisors. With a good policy in place, investors will know what to expect from their advisors and advisors will know how to best help their clients.

Risk management is the cornerstone of any investment policy. Until recently, most investors have been far too willing to accept extra risks in an attempt to earn higher returns. Often the idea has been to simply dial up risk tolerance until the desired level of return is achieved. In my view, such an approach to risk management is dangerous. However, a low tolerance for risk may mean that the investor is unlikely to achieve their stated goals. In these circumstances, the goals should be changed and not the investor's tolerance for risk. If an investor is of modest means then retiring in luxury is probably out of the question. Far too many investors pressure their advisors to make their unrealistic dreams come true. As a result, they load up on risky securities which may lead to success but are much more likely to lead to ruin. Proper risk management is all about defense.

When it comes to developing an investment policy, most advisors will try to help, but few are good at it. Developing an investment policy requires expertise that the majority of advisors lack. As a result, it is a good idea to seek out more experienced advisors who specialize in investment policy and planning. For the die-hard do-it-yourself investor, Charles Ellis' book Winning The Loser's Game (ISBN 0070220107) discusses investment policy development in some detail. Once you have a good investment policy then it is a relatively simple matter to move your RRSP from short-term debt to more sensible long-term investments that fit in well with your long-term goals.

Finally, there is no reason to make rushed decisions when it comes to your RRSP. To avoid last minute RRSP pressure simply follow the RRSP three step; buy short-term debt, consult your investment policy, and wait to buy the right securities for your portfolio. You may have to hurry to make this year's RRSP contribution but you should take the time to find great investments.

First published in February 2003.

Globe & Mail Articles

 Dividend All-Stars for 2024
 250 Megastars for 2024
 Extreme yields
 The easy way
 Smaller stable dividend
 250 Megastars for 2023
 Champagne portfolio
 Screaming Value
 Blended momentum
 Dividend monster
 Frugal dividend
 Stable dividend
 Speads and recessions
 TSX 60 for value investors
 Looking at 10-year returns
 Watching for a bottom
 Oh, bother!
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

MoneySaver Articles
 2 Graham Stocks for 2018
 2 Stingy Stocks for 2017
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Old MS Articles
 Cdn Top 200 2018
 Cdn Top 200 2017
 Cdn Top 200 2016
 Cdn Top 200 2015
 Cdn Top 200 2014
 Cdn Top 200 2013
 Cdn Top 200 2012
 Cdn Top 200 2011
 Cdn Top 200 2010
 Cdn Top 200 2009
 Cdn Top 200 2008
 Cdn Top 200 2007
 Cdn Top 200 2006
 Cdn Top 200 2005
 US Top 500 2018
 US Top 500 2017
 US Top 500 2016
 US Top 500 2015
 US Top 500 2014
 US Top 500 2013
 US Top 500 2012
 US Top 500 2011
 US Top 500 2010
 US Top 500 2009
 US Top 500 2008
 US Top 500 2007
 US Top 1000 2006
 Dividends 100 2017
 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
 Retirement 100 2013
 Retirement 100 2012
 Retirement 100 2011
 Retirement 100 2010
 Income 100 2009
 Income 100 2008
 Income 100 2007
 Top Trusts 2006
 Top Trusts 2005
 Hot Potato
 Buffett Buys
 Stocks that pay
 Value in the S&P500
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividend growers
 Graham's prescription
 The case for optimism
 Wicked investments
 Simply spectacular
 Small stocks, big profits
 Value that sizzles
 So simple it works
 No assembly required
 Investing by the book
 Invest like the masters
 A simple way to get rich
 Stocks for cannibals
 Car bites dogs
 So easy, so profitable
 Dogs of the Dow
 Money for nothing
 Yield of dreams
 Return of the master

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Flip Books

About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...