Many Canadians contribute to their RRSPs or TFSA’s and then ignore them until it’s time for the next contribution. Stashed away in a savings account, that money is not earning its keep. If this describes your behavior then you are simply throwing dollars out of the window.
The first step of this two-step process is to contribute to your registered account. The second and perhaps most important step is to invest those funds wisely. Even I have been guilty of forgetting this second vital step on the journey to my retirement.
Why do people pay little attention to the investment phase of saving for retirement? Perhaps it’s because of the immediate reward they receive when they get a credit on their income tax. When I first started putting money into an RRSP that was my prime motivation. Lower taxes were my goal.
Perhaps it’s because the second step is not as straightforward as people imagine it to be. Investing wisely involves balancing investment risk with return, not a subject many Canadians are all that familiar with. On the other hand, perhaps it’s because a mutual fund salesperson has talked them into buying units in some mutual fund that they know little about. Then they comfort themselves by rationalizing that they really are invested and everything will be okay.
Unfortunately, until people recognize that investing their money in registered accounts is a necessary step towards growing their wealth then their savings, much like a desolate garden, may wither away. But we can’t lose the money we put into an RRSP the uninitiated might explain. The hard, cold truth is that you most certainly can. Even in the equivalent of a savings account in your RRSP you can lose purchasing power due to inflation and eventual taxation.
You need to learn how to invest wisely not just to grow your savings but to keep them from withering away like a garden of untended plants. Read investment books. Take courses on investing. Search the web for advice but be careful to avoid the hazards waiting there just for you. Hire a financial planner, preferably one who works on a fee-only basis. Be cautious of mutual fund salespeople who depend on commissions for their livelihood. Educate yourself on how to invest wisely. Then make your registered accounts earn their living and provide you with retirement that you deserve.
My book, Retirement Investing, provides a good, basic understanding of the subject. Check it out.
