Common RRSP mistakes to avoid
With the RRSP season about to swing into high gear, the National Bank is warning investors against 10 all-too-common investing mistakes.
"While there is no surefire recipe for building up your RRSP," noted Cynthia Bélanger, a Wealth Management Financial Planner with the National Bank, "there are certain golden rules to retirement planning. First, you must understand your investment needs. How much risk can you tolerate? When do you plan to retire? What standard of living do you intend to maintain? Most importantly, however, you must start saving as early as possible."
Informed investors should also be wary of making the following 10 mistakes, which can prove very costly in terms of time, energy and money.
- Investing without a clear-cut goal
Just as you would spend time planning a vacation, so must you plan your financial future. It is important to have a clear understanding of your goals and how to achieve them. You must know how much money you will need at retirement, how much you will therefore need to save, and how you should go about doing so.
- Putting all your eggs in one basket
Any number of financial products can be included in an RRSP: GICs, variable-return GICs, mutual funds, strip coupons, portfolio-linked notes, etc. In order to enjoy the highest potential return, given your particular investor profile, you should therefore take advantage of every type of investment. Since it is virtually impossible to predict which product will turn in the strongest performance at any point in time, diversifying your holdings is the best way to capitalize on any gains while minimizing the risks inherent in each investment.
- Being impatient
A wise investor understands the merits of patience. Choose your investments with care and then stick with your strategy while keeping your eyes and ears open. If your investment horizon is 5, 10 or 20 years, let time run its course and stay calm.
- Investing only once a year
You will need to save for your retirement on a regular basis throughout your life. Investing systematically throughout the year can help you with this.
- Tracking the market
"It can be risky to blindly follow the market and invest only in whatever products happen to be popular. The best investment strategy involves pursuing medium- and long-term objectives based on sound and well-planned investment decisions. This strategy hinges on an investment product's fundamental value rather than market highs and lows," explained Ms. Bélanger.
- Letting yourself be swayed by emotions
Do not let your emotions dictate your investment decisions. Given the volatility of markets, it can be very risky and costly to let your emotions rule. Similarly, don't be lulled into thinking that your portfolio can't be improved upon. When it comes to financial planning, your best bet is to play it cool and never lose sight of your medium- and long-term objectives.
- Accumulating unused contribution room
Taking advantage of unused contribution room is certainly the best way to make up for lost time and… reduce your income taxes. You can top up your unused contribution room over several years.
- Ceasing to contribute to your RRSP when you turn 69
By law, you cannot contribute to your RRSP after you turn 69. However, you can still contribute to your spouse's RRSP even if you were 69 on January 1, provided your spouse is 70 or younger and you still have unused contribution room.
- Investing in last year's stars
"When it comes to investing, past performance is not always a guarantee of future results. You cannot assume that securities which posted gains in the past will necessarily continue to do so. It is preferable to look at an investment's potential return and the related risk," Ms. Bélanger stated.
- Trying to go it alone
To maximize your retirement savings, you need the information and sound advice that financial experts can provide. The National Bank's advisors can do just that by helping you plan your retirement and choose the appropriate strategy for your investor profile.
The National Bank offers a comprehensive range of investment solutions tailored to suit different investor profiles. Take advantage of the expertise of its specialists to effectively manage your portfolio and plan your retirement.
About the National Bank of Canada
National Bank of Canada is an integrated group which provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. The National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. The National Bank has assets of over $82 billion and, together with its subsidiaries, employs close to 17,000 people. The Bank's securities are listed on the Toronto Stock Exchange (NA:TSX). For more information, visit the Bank's website at www.nbc.ca.
(the telephone number and e-mail address provided below are for the exclusive use of journalists and other media representatives):
Manager, Public Relations Department
National Bank of Canada
Tel.: (514) 394-8644