Ellen Roseman: RRSP tips for turbulent times
- January 24, 2008 8:01 AM |
- By Ellen Roseman
Money Talks is a collection of daily columns from The Business Network, which airs weekday mornings on CBC Radio One at 5:45 a.m. ET (6:15 a.m. ET in N.L.).
By Ellen Roseman, personal finance columnist, Toronto Star
(Listen to the original audio)
When you invest in stocks, you're taking a journey. Your destination is a higher net worth for you and your family. The ultimate goal is financial security.
So, when stock markets go through convulsions, as they did this week, your travel plans may be delayed. The age of retirement retreats another few years. The kids' post-secondary education depends more on remortgaging the house than on your registered education savings plan.
It's like driving a high-speed Ford Mustang across the country. You start from Halifax and you're already in Winnipeg. Suddenly, a violent storm whips you back to Montreal. Now, all that lost ground has to be made up again.
When evaluating your progress, you wonder whether you should ditch the car and travel by bicycle. Bikes are slow, but they get you where you want to go eventually. You can make it to Vancouver sooner in a car, but there will be storms and setbacks. Can you handle the ride?
While the Toronto Stock Exchange roared back after its huge drop on Monday, it's not out of the woods yet. There are other nasty surprises to come. The U.S. credit crunch may push the U.S. economy into recession. And if that happens, the Canadian economy won't be far behind.
So, what does this mean if you're thinking about contributing to a registered retirement savings plan? Here's my advice:
- You need to keep saving if you want to make the journey from weekly paycheques to financial security. For many Canadians, the RRSP is a tax-sheltered way to build a nest egg for the future.
- You need to look at how you invest your savings. If there's too much in stocks or equity mutual funds, you will suffer through many unnerving market downturns. Make sure you have a balanced approach.
- Finally, you need to keep that high-speed car if you want your money to grow faster than inflation and income taxes. But don't drive it all the way across Canada unless you're very brave. Travel by bike for some stretches and you'll have a longer but safer trip - and you won't be tempted to turn back to Halifax every time there's a reversal.
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