By Shawn Allen, Contributing Editor
Appropriate RRSP investments
In a tax-sheltered account like an RRSP, which is essentially a personal pension plan, risk should be given special consideration. The amount that can be sheltered in an RRSP is limited and you can’t replace losses. If your plan takes a big hit because of a market crash, you’ve lost part of your retirement savings. That’s money that cannot be replaced.
Many of the securities on the IWB Recommended List are suitable for RRSPs. However, you should avoid those that are more speculative in nature and be careful about putting money into highly cyclical stocks, especially if retirement is just a few years away.
Here are a few recommendations
You might want more diversification in your portfolio. In that case, consider an exchange-traded fund or mutual fund.
Tax efficiency
Also think in terms of maximizing the tax efficiency of your portfolios. If you have both an RRSP and taxable accounts, it makes sense to put those investments that face higher rates of tax into the RRSP in order to take maximum advantage of the tax benefits of the plan.
In this case, investments such as GICs and bonds, whose interest payments are taxed at full marginal rates, should be placed in an RRSP or other tax-advantaged accounts rather than in taxable accounts. If, however, you have only an RRSP account then it should contain a balance of equities, bonds, and cash.