BY: FAZAAD BACCHUS
As the headline says, the RRSP deadline has passed. You had until the 1st of March if you wanted to make a contribution towards reducing your taxes payable in relation to the 2017 income year. Any contributions you make from now on will go towards your 2018 tax year. I hope that you were able to make your contributions. If not, that money has gone to the tax man.
If you made a contribution, what did you contribute to? A simple savings account, GIC, bonds, ETF’s, mutual funds, stocks? Did you pick the right one? Simply by asking this question, it becomes apparent that there are so many choices, consumers may make the wrong choices unless they have the help of someone who knows and understands the market.
More often and especially at the end of February, the typical customers walks into a bank to buy their RRSP and often find themselves dealing with an advisor who sells them a balanced fund. With this type of fund, you will not earn a lot of money, perhaps an average of 4% to 5 % per annum over a five year period. Over the long run, they are more likely to give you a lower return than properly put together portfolios.
However carefully put together portfolios require time and expertise of a qualified financial advisor. You will hardly find that someone, who will spend hours putting together a portfolio for you when they have readymade portfolios where they “put you in and forget your methodology”. It’s like a walk-in clinic, you go in, the doctor looks at the computer screen more than he does you, and in seven minutes you are out of there. He doesn’t think of you after you’re gone. Don’t you wish for the olden days when a doctor appeared or showed you he cared?
This is how it should be with your investing also, your financial advisor is not there just to process your sale, he should be your advisor, after all, that’s what he is called. Here are some questions that your advisor should have asked: Are you simply saving in an RRSP or are you saving for your retirement? What are your retirement goals? How much money will need for retirement from your savings? What age do you plan to retire? What is your life expectancy? What’s the lifespan of your parents? How much social security benefits are you expecting to receive? If you got a critical illness, would you need to withdraw from your RRSP?
This is what you should expect from an advisor, not just taking the money and investing it without a plan. Depending on your goals and risk tolerance an advisor should customize a portfolio where you can make the most returns at the lowest possible risk. Too often I come across clients who have very high-risk portfolios only to see that they are making a lower return than they should. So if you are in the position where you did invest in a balanced fund at one of your bank branches, it might be beneficial to consult with an advisor, and there are many who don’t charge sales commissions, to see if they can do better for you.