Wednesday, January 19, 2011

Tis the Season

Yup, that time of year is just around the corner.  For my sister and friends who work in financial services, it's the dreaded crazy-stupid busy period in the lead up to the February 28 deadline to make last-minute contributions to your RRSPs in time for the 2010 tax year.

Now, I wouldn't normally write about RRSPs since I've never particularly been interested in investing - at least in financial instruments.  A statement bag?  Yup.  A diamond pendant or the go-girl right-hand ring?  Sure.  But those are all pretty "investments" that are tangible and that I can wear on my person.  A stock or mutual fund?  Where's the fun in that?

Seriously though, I came across this headline in the Star today - Fewer Canadians 18 to 34 have RRSPs, bank poll finds - and for some reason, clicked through.  Seems only 39% of my contemporaries today have an RRSP compared to 62% who said they did 5 years ago.  The main reasons cited for not investing include the desire to reduce debt, save for a rainy day, or home ownership.  On that last point, I have to say that one of the key reasons I'm a homeowner today is because I invested in an RRSP just about as soon as I started working full-time and was eligible to take part in a company-sponsored plan: I "paid" myself first by having a percentage of my pay cheque automatically deducted and invested into an RRSP and maxed out on any employer matching programs offered.  On the former, I'm not tempted to spend the money on stuff I don't need and on the latter, any funds matched are "free" money to me.  And who doesn't want free money?  I then took advantage of the Government of Canada's Home Buyers' Plan and withdrew funds tax-free from my RRSP to help pay for the down payment on my condo.   

Interestingly enough, the year-end statement for my employer-sponsored plan arrived today and frankly, I'm always pleasantly surprised by how much I've socked away because I honestly don't think about the biweekly deposits I make into this plan.  The best is seeing all that "free" money in matched contributions - a sweet 16% of my porftolio is made up of these funds!

So, if I can share any investing advice with you, it will be as I advised my brother when he first started work: make sure you participate in your company-sponsored RRSP and take advantage of any employer matching programs offered.  Some company's match a percentage point for every year of service, i.e. if you've worked 1 year, they'll match up to the first 1% of your contribution so the 2% of your salary that you've contributed is now actually 3%. In real numbers, assuming you make $50K a year, the $1000 you've put away in your RRSP is now $1500 - that's $500 "free."   I'm not even going to get into the benefits of compounding interest and the potential of lower weighted-average costs of investment. 

Even if you don't work for a company with these benefits, open up an RRSP account.  There are so many resources online to help you with that and if you're nervous about doing it on your own, get some help and visit your local branch.  Despite what 50% of Americans think, you're probably not going to retire from the lottery so be responsible about your future.

1 comment:

Kelly @ JAX does design said...

I'm embarrassed to admit that I don't know much about RRSPs, GICs, pensions plans, etc. Luckily, my hubby is an RRSP whiz, so I leave all the work up to him!

{I ordered the Sherlock Holmes prins yesterday. I'll blog about it when it arrives :-)}

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