RRSP deadline today for 2014 tax year
Today is the final day to buy a registered retirement savings plan that will be including for the 2014 tax year in Canada.
And if you’re the procrastinator who left your RRSP planning to the last minute, you may be looking for advice on how to invest that money.
The RRSP is a popular savings vehicle in part because the amount of your investment is deducted from your taxable earnings, reducing the amount of tax you pay for the year.
If you’re a regular saver, you can get the federal government to cut the amount of tax taken off your paycheque each week. And if you bought it at the last minute, chances are you’ll get a tax refund.
Where to put the money
David Kaufman, president and CEO of Westcourt Capital, recommends keeping part of your RRSP savings in riskier assets with greater long-term potential, such as equities.
"Over a 50 or 60 year period, the one thing that we have really good data on is equity markets," Kaufman said in an interview with CBC’s The Exchange with Amanda Lang.
And one of the most solid performers is the S&P 500 — the basket of American stocks that includes 500 publicly listed companies representative of the U.S. economy.
"We would recommend, among riskier assets, somewhere in the zone of 50 per cent in the S&P 500. Are we picking stocks, No. We’re talking ETFs. Buy the whole market and it will grow solidly over time," Kaufman said.
Canadians tend to invest heavily in Canadian markets, he said, but he recommends no more than 25 per cent exposure to Canadian equities. Another 25 per cent might be in small cap U.S. stocks or invested in other parts of the world.
Managing risk
The amount of risk you take on in an RRSP plan depends on your age and what other assets you own outside the plan, he said.
"As you get closer to the age of 71 or the time when you might start taking it out, the less risk you want," Kaufman said.
"You don’t want to have one of those 2008 risk events happen just before you need some of that capital."
Investors aged between 35 and 50 who plan to start withdrawing from their RRSP around the age of 71, have a long period ahead of them to allow their investment to grow.
But those closer to the age of retirement will want to move their investments into something less volatile than equities, Kaufman said.
He also warned savers to plan for the unexpected, such as a period of unemployment or the need to retire early.
"You have to handicap... the likelihood that you’re going to take that money out ahead of time. Just because it’s called a retirement savings plan, doesn’t mean that everyone keeps it all the way,” he said.
