Do your best to avoid investments in an RRSP that could go down in value.
On the plus side, investments in an RRSP enjoy a double benefit. Deducting your contribution is only a start (although you can gain an extra benefit if you use the tax you save to pay down non-deductible debt and/or make additional investments - rather than spending the tax savings). The compounding tax-free growth can produce huge gains over the long term because you get to keep and invest the income tax you would otherwise pay on interest and dividends outside the RRSP. You could typically end up with twice as much money - even after paying the tax on your RRSP/RRIF withdrawals.
But - and it's a big "but" - if you lose money on the investments in your RRSP, you have a double loss.
"In addition to simply losing the money, you lose the opportunity for that money to compound tax-free for years, even decades, before you take it out," notes Pat McKeough, publisher of The Successful Investor newsletter.
What's more, you can't claim the loss against any capital gains - something you can do outside the RRSP.
So put only your safest investments in your personal or spousal RRSP. Do any speculating outside the RRSP. Realize also that dividends earned in an RRSP don't benefit from the dividend tax credit, which is available when you receive them outside an RRSP.
On another money-saving topic, I continue to be amazed by the difference in the prices of similar goods and services - and am so grateful for having the Internet to do some quick comparison shopping.
The latest example: A difference of $210 for renting exactly the same car for the same period between two major national car rental firms. It took me perhaps 10 minutes to book the more expensive one, then discover the cheaper one and cancel the more expensive one - which meant I was earning at the rate of a tax-free $1,220 an hour.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected]
