Canadians hold more than $1.03 trillion in RRSPs and more than half of it is in mutual funds, the most popular investment. But there is place for many different types of investments in self-directed RRSPs. Ask your adviser about effective tax strategies for holding these investments and about how to adjust the mix of investments so you are comfortable with the level of risk.
Here are some of your options:
You can put the money in and forget about it, but it's not working for you. Interest rates for RRSP savings accounts are currently at 0.2 to 0.5 per cent.
Guaranteed Investment Certificates:
GICs pay a fixed interest rate and your savings are protected, though locked in for the term you chose. Interest-bearing investments such as GICs are good to hold in an RRSP since their returns are otherwise fully taxable. But the interest rate you get right now is likely to be very low, often lower than inflation.
Bonds are a low-growth but usually safe investment, especially provincial and federal bonds. Bond interest is taxable as if it was income, so holding them in an RRSP can protect you from paying tax on them.
Mutual funds are pools of money that are professionally managed for the benefit of a group of investors. Each will have its own investment philosophy and track record. They are among the most popular RRSP investments because they are a convenient way to access a diversified mix of stocks, bonds or other investments.
Exchange Traded Funds:
ETFs are investment funds that are traded on stock exchanges and often will track a stock or bond index. An ETF holds assets such as stocks, commodities, or bonds. Often seen as having an advantage over mutual funds because of lower fees, they may be out of favour after this year's market rout.
If your RRSP balance is larger than the capital outstanding on your mortgage, you can loan yourself the capital. That way, when you pay back mortgage interest, you'll be paying yourself. There can be substantial legal fees, CHMC fees and an administrative fee. This is a complex and paperwork-intensive process, so weigh out the benefits with an adviser to see if it's right for you.
Shares in companies can be held in a self-directed plan. It's not the most tax-advantageous way to hold them, as you cannot write off losses in an RRSP as you can when stocks are held outside a registered plan. On the other hand, any gains are still tax-free.
These investment funds are sources of venture capital for small- and mid-sized businesses with fewer than 500 employees and less than $50 million in assets. Sponsored by labour organizations they come with a 15 per cent tax credit from the federal government. They were popular in the 1990s, but have a poor track record that has discouraged investors.
Segregated funds are an investment product with an insurance component. Segregated funds hold stocks and bonds like mutual funds, but provide a guarantee to protect part of the money you invest (usually 75 to 100 per cent). You have to hold your investment for a certain length of time — often 10 years, You may pay higher fees for the insurance protection.