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Don't be pressured into investing during RRSP season

So you’ve just topped up your RRSP, or if you’ve been a particularlygood boy or girl, you’ve been adding to it all year. Well done. Ifyou’ve just made your first ever RRSP contributions, congratulations.

So you’ve just topped up your RRSP, or if you’ve been a particularly good boy or girl, you’ve been adding to it all year. Well done. If you’ve just made your first ever RRSP contributions, congratulations.

If you haven’t already received it, you’ll soon get a phone call gently pressuring you to do something with the money, such as invest it in stocks or mutual funds.

If you’ve got your money sitting uninvested in an RRSP, especially the no-fee variety, the financial institution isn’t making any money. Hence the pressure.

My advice is to tell them to stuff it into a low-fee, high-interest savings account or GIC, until you know for sure what to do with it. And please don’t write telling me there’s no such thing as a high interest savings account. You know what I mean.

As far as I’m concerned there’s no rush whatsoever to make up your mind. I’ve rarely seen anyone who hurries into an investment do well. Usually they end up sorry, sometimes very sorry.

Let’s say you were talked into buying a selection of technology stocks, or one or more technology mutual funds in 2000 before the technology-laden Nasdaq composite index hit its market peak of 5,132 on March 10 of that year. Legions were, and the pressure to catch hold of the technology rocket was intense.

Then the Nasdaq dropped 78 per cent by the end of 2002. Today, almost 11 years later, the index has recovered to just a little more than half of its peak. Many portfolios still haven’t come back that far.

That was an extreme example, and it can’t happen again, right? Heard about the U.S. subprime financial implosion? That was a made in the U.S.A. problem, which we were supposedly well insulated from. Even so, the TSX dropped almost 50 per cent from it’s highs of summer 2008 to the New Year of 2009.

The moral of the story is never be rushed into investing if you’re not sure you want and don’t understand the implications.

 
 
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