Media bugging you about the RSP deadline? Ignore them – Seriously. The only Canadians who really benefit from this government created tax deferral program are the highest taxed employees. For the rest of us – it is time to consider what to do about our existing RSP investments, why they keep dropping in value, and more importantly what can we do about it.
Bank Management Fee of 100K
There was a recent expose on the state of how the major Canadian banks are doing business on CBC Marketplace. Among the three areas covered – the one that really caught my attention was the cost of investing in your RSPs with the banks. The illustration they used was if you invest 50K into a well diversified portfolio of mutual funds it will grow to 250K after 25 years. This sounds great! The problem is that the bank has taken 100K in management fees over this time. In fact, Canadian Schedule 1 banks have the highest management fees in the developed world. Is this a picture of your financial future?
Take Control – Self Directed RSP
One aspect of working with my clients on their mortgages is that we complete a brief net worth statement as part of their application. One of the important questions I will ask my clients is – when was the last time your RSPs doubled? This may sound like a silly question. The reality is if you are not doubling your initial principle invested ever 5 years and at least every 10 – you are moving backwards. One simple step everyone can take is to review your registered investments and see what their performance has been over the last five years. Once you have finished drying your tears – I will show you a great option. Self Directing your RSPs into a third party trust company will protect you from the volatility of the markets while you consider your options. This is because your funds are not invested anywhere until you decide so no risk of losing your principle. Now where do we make our returns?
Mortgage Investment RSP Style
The best way to earn consistent and steady returns with your RSPs is to invest in real estate. Now not all real estate investment is created equal. Here are 3 investments where my clients have thrived in spite of the economy. The important aspects to consider here are – is your principle protected in case of another 2008 financial market meltdown – are you free to invest in the type of investments where you can get a consistent 8-15% annual return on your money – and last but not least – are the management fees you are being subject to keeping you from making progress toward your retirement goals. In all cases – investing in your RSPs with your bank leaves you exposed. Taking control and educating yourself on the vehicles available will provide the certainty that there is a better way to increase the value of your existing RSPs and retire in style.
So the next time you are standing in line at the bank on February 28th and the teller asks you to if you would like to contribute to your bank’s RSP – just crack a smile and say no thank you. Bank management fees and the uncertainty in the general markets are enough for any Canadian to rethink this tired investment strategy. Your questions are answered promptly so ask away on the form below.