Did you wait until last Friday to make your RRSP contribution? Welcome to the club. It’s not an exclusive club either, with membership in the tens of thousands. But last-minute RRSP contribution is only part of the problem. That contribution is typically in cash, to a savings account or term deposit. And that cash might not be deployed into productive investments until, say, July, if then. And that’s a big problem. RRSP savings accounts and term deposits yield virtually nothing. It’s no way to create a retirement nest-egg. But there is a way to get your RRSP funds working for you…fast.
The simplest way is to go to your bank or brokerage firm and ask for their on-site advisor (most bank branches will have one, and all brokerage firms will). The advisor will ask you a few questions about your investing objectives and risk tolerance, and will probably already have a slate of money market, fixed income and equity funds that are appropriate for your circumstances. Select an asset allocation, then populate that allocation with those fund choices. Simple. It’ll only take a few minutes, and your money will be working for you within 24 hours.
Another option is to call up a mutual fund distributor on the phone. Whether it’s Phillips, Hager & North, CI Financial, AGF Management, Investor’s Group or whoever, they’ll have a customer service person who will be happy to get you set up. You can authorize transfer from your bank savings RRSP to their firm and, again after the questions on objectives and risk tolerance, they’ll be able to recommend an allocation and funds to populate that allocation. Just like that, you’ll be done.
If you do it yourself...
These days, many investors choose to go the “do-it-yourself” route. That’s fine too, and not an obstacle to getting your returns flowing right away. You’ll need to open an on-line investing account at your bank, and that can take a few days for the approval to go ahead and invest. Once you have the approval, you can choose whatever funds or exchange-traded funds (or stocks or bonds) you want, all via your home computer.
If you’re a do-it-yourselfer, you will need to choose an asset allocation on your own. My recommendation, based on current capital market expectations and assuming a medium risk tolerance, is to go with 5% cash, 40% fixed income, and 55% equities. If your circumstances make you feel you can be more aggressive, you can up the equity component at the expense of fixed income, leaving the cash allocation unchanged. If you’re more conservative, boost the fixed income and reduce the equity exposure. But do something.
The instant portfolio
As for populating that allocation, consider holding the cash allocation in either guaranteed investment certificates (GICs) or term deposits, choosing a rate that is higher than current inflation, which is 1.5%. I don’t recommend money market funds, Treasury bills, Bankers’ Acceptances – the returns aren’t there, and the fees and commissions/spreads just make it worse. Or you could just put the cash into a Tax-Free Savings Account (TFSA), and use the RRSP only for fixed-income and equities.
To get started in fixed-income, you might consider a diversified exchange-traded fund (ETF) or two. You might, for example, put all 40% into the iShares DEX Universe Bond Index Fund (TSX: XBB), which covers both the Canadian government and corporate bond universe. Or you could put 20% into the iShares DEX All Corporate Bond Index Fund (TSX: XCB), and 20% into the iShares DEX All Government Bond Index Fund (TSX: XGB).
For equities, I’d put half of the 55% sample allocation into the iShares S&P/TSX 60 Index Fund (TSX: XIU), and split the other half evenly between the iShares S&P 500 Index Fund (CAD-Hedged) (TSX: XSP) and the iShares S&P MSCI EAFE Fund (CAD Hedged) (TSX: XIN). That way you’ll have half in blue-chip Canadian equities and half in U.S. and international equities.
If you want something sexier for the Canadian equity component, and less risk and more income, I really like the Dynamic Equity Income Fund Series A, fund code DYN029. Or half in that and half in the iShares S&P/TSX 60 Index Fund.
Take this route, and presto! You’ve got an instant RRSP portfolio that’ll see you through a year or until you do your next review and rebalancing.
David West, CFA, FCSI, has more than 30 years’ experience in the financial services industry as an adviser, trainer, writer and commentator. He has written for The MoneyLetter and Canadian Business Online among others, and is a regular contributor to the Fund Library.
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