RRSP Questions

[I_H8_Crawford]

Hey CP, a couple questions on RRSPs:

1) If you have a regular GIC/Mutual Fund, etc. and want to make it a RRSP, do you have to move it to a RRSP GIC, or can you register the current one as an RRSP? And if you register it, do you have to pay any fees to do that?

2) What happens if you get a 5 year GIC as a RRSP at the end of 5 years?

3) If you already have a RRSP account that contains mutual funds, but you want to add bonds to it, do you need to open a new RRSP account?

Thanks guys.

[Slava]

1) You can likely transfer this "in kind" into your RRSP account. You will need to check with the institution that is holding it for you, but that is likely the way to do that.

2) The GIC matures and then you are holding cash in the RRSP account. Alternatively the funds are re-invested in a 5 year GIC. (In other words if you do nothing at the end of the 5 years than most banks will roll the old GIC with interest into a new term).

3) It depends on where/ what kind of account you have. You could buy a bond fund if you already have mutual funds, or you could be in an account that already allows single securites and be able to buy individual bonds if you want. Otherwise you would have to open another RRSP account and buy the bonds there.

I don't know your situation at all, which tempers what I'm about to say: The time for bonds has likely passed for this cycle. Interest rates have fallen by 3/4 point already and that is when bonds shine. (In a declining rate environment). I have clients who have made a fair amount of money in this environment, but that is based on the currency and the declining rates. Over the longer term interest rates will rise (we are at historical lows...so I'm not exactly going out on a limb here!)

Anyway, sorry to add the unsolicited advice, but I felt compelled to say something! If you have other questions let me know and I'd be happy to help.

[I_H8_Crawford]

Thanks!

What would you suggest if I want to make an RRSP contribution now, lump sum, and my mutual funds have already lost 20% from the beginning of the year?

[Table 5]

Originally Posted by I_H8_Crawford

my mutual funds have already lost 20% from the beginning of the year?

that's actually pretty good!

[I_H8_Crawford]

Originally Posted by Table 5

that's actually pretty good!

Oops!
More like 40% since the Oct fiasco!

[Table 5]

yeah, thats more like it (unfortunately). I was going to start asking you for advice...

[Slava]

Originally Posted by I_H8_Crawford

Thanks!

What would you suggest if I want to make an RRSP contribution now, lump sum, and my mutual funds have already lost 20% from the beginning of the year?

I hate doing this...just cause I know absolutely nothing about you or your situation. I personally am buying Canada and China though. I have been putting money in over the last month or so, and while I might not be making much right now it will look great in 5 years.

If you're a young guy (pure assumption on my part) than seriously the GIC is not where you want to be. A 5 year GIC at this point is likely paying you around 4%? After inflation that comes to about 1%....clearly you can get better over the longer term.

I am not too sure about a lump sum though; you might want to dollar cost average that lump sum into the market over the next 6-8 weeks. (Break that lump sum down to 6-8 payments and buy once a week so that you are fully invested by mid-December). Truthfully though, any buy (lump sum or otherwise and not talking about the specific investment here) in this period should serve you well over the long term.

[MoneyGuy]

Slava's answered the questions so I'l lget into some of the side issues that have come up. For a more aggressive investor, I'd be looking at emerging markets and sectors like technology. I almost hate to say that because I've become disillioned with how investors deal with the volatility of sector funds. I've told some colleagues that if they ever find out that I've sold another sector fund, they have permission to strip me naked and whip me in a public park. Lots of people say they can handle the volatility, but when it happens they don't carry through. Maybe I'd be looking at a well diversified global fund.

I do agree with this advice on GICs and also the DCA strategy.

Originally Posted by Slava

If you're a young guy (pure assumption on my part) than seriously the GIC is not where you want to be. A 5 year GIC at this point is likely paying you around 4%? After inflation that comes to about 1%....clearly you can get better over the longer term.

I am not too sure about a lump sum though; you might want to dollar cost average that lump sum into the market over the next 6-8 weeks. (Break that lump sum down to 6-8 payments and buy once a week so that you are fully invested by mid-December). Truthfully though, any buy (lump sum or otherwise and not talking about the specific investment here) in this period should serve you well over the long term.

And don't believe the nonsense we hear about RRSPs being a bad choice because of the eventual taxes. People who whine about paying the taxes when they draw the money out have been forgetting all the taxes they saved for decades of having the RRSP.

Don't forget the upcoming tax-free savings account either. I love this thing and the smart investor will be using both the RRSP and TFSA.