Finance
Fiscal Health
|
|
Rajesh
Chowdhry is
a Certified Financial Planner and can be reached at
905-450-1500
or 905-846-2708
|
Unsure
about where to invest
your RRSP money?
Changing financial goals and market fluctuations can sometimes
make long-term investment decisions difficult especially
if you are making your rrsp contribution at the last minute.
Fortunately, you don't have to commit your
money to a long-term plan the instant you make your contribution.
There are ways to temporarily "park" your rrsp contributions
while you determine your long-term investment strategy.
Among the best temporary homes for your contributions
are money market mutual funds. They offer low-risk and reasonable
returns without requiring you to lock in your money. These funds
provide a way to get money into your retirement plan before
the contribution deadline, allowing you to reap the tax rewards
associated with your contribution while temporarily deferring
your investment decisions.
Most mutual fund companies include money market
funds as part of their fund families, therefore you can easily
move your money out of the money market fund when you are able
to commit your money to a longer term investment.
The goal of money market funds is to provide
a high level of current income and liquidity with capital stability.
They do this by primarily investing in a diversified portfolio
of Canadian money market securities having a maturity of 13
months or less. These investments will include certificates
of deposit, bankers' acceptances and short-term obligations
issued or guaranteed by chartered banks or government authorities.
There is a trade-off for this capital stability over longer
periods, however, because returns from money market funds tend
to be lower than returns from other types of investments, such
as income, balanced and equity mutual funds.
If you have a self-directed rrsp, you can simply
deposit your rrsp contribution into the cash portion of the
plan until the time when longer-term investment decisions can
be made.
Another investment option would be Guaranteed
Investment Certificates. But with a gic rrsp you'll usually
have to wait until these investments mature before making longer-term
plans.
Even if you don't know where you want your
rrsp money to end up, you should make the largest rrsp contribution
possible, subject to your maximum for that year. Depending on
your income tax level and the province you live in, you could
reduce your annual income taxes or increase your tax refund
by up to 53 per cent of the amount you contribute.
Remember, the longer your money sits in a temporary
investment, the more investment potential you give up. So be
sure to allocate your contribution before too long.
