Despite the recent economic downturn, now is the time to open or invest in a Registered Retirement Savings Plan (RRSP); it is not the time to walk away, experts say.
“When the market is booming, we’re investing like crazy,” says Judy Thomson, director of BMO retail investments.
“When the market is where it is today, we’re terrified.” Such investment psychology is flawed, Thomson says.
“You don’t want to just take advantage of investing when it’s up, you want to take advantage of investing when it’s down and getting back up,” she says.
An RRSP is like a basket, says Lee Anne Davies, head of advanced retirement strategies with RBC. “You can have different types of investments in this basket, including mutual funds, GICs, stocks, bonds or cash,” she says. Not every item in the basket has been affected the same way.
“We recognize how stressful this time period is for many,” says Davies. She encourages both veteran and potential investors to visit their bank’s local branch and meet with a professional financial adviser, who can help them assess (or reassess) their goals and investments.
“Do your investments reflect your risk tolerance, goals and time horizon (number of years before you retire)? If so, there may not be a need to change anything.”
Fifty per cent of Canadians haven’t seen an adviser at all, says Thomson — even though it’s free. “They’ll spend more time planning their exercise routine, or a vacation, than thinking about their retirement,” she says.
Thomson offers readers this sample plan: A 25-year-old who deposits $100 into an RRSP, she says, followed by $25 per week afterward, will have earned more than $380,000 when they turn 65. (These calculations are made using an average market return of eight per cent over the long term.) An investment of $50 per week leads to more than $765,000, while $100 per week becomes a little more than $1.5 million.
“We need to get people away from thinking, ‘I’ve got to make such a huge investment!’ to ‘Small amounts of money over a long period of time make a huge difference,’” says Thomson.
The most important thing is for Canadians to continue moving toward their goals, says Davies. “Retirement’s still going to happen,” she says. “We know from history that markets come back, so keep investing, and get into the habit of saving on a regular basis.”