MOST last-minute RRSP contributions just go into cash.
Don't waste your time and money. Instead, put your cash to work in some well-chosen investments right away.
At your bank or brokerage firm where you make your contribution, ask for their onsite adviser. The adviser 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 mutual funds that are appropriate for your circumstances.
Select an asset allocation. For example, I'll use a mix of 30 per cent safety, 30 per cent income, 30 per cent growth, then populate that allocation with those fund choices. It's simple. It'll take only a few minutes, and your money will be working for you within 24 hours.
Another option is to call up a mutual fund distributor that takes direct deposits from retail clients. Outfits like Phillips, Hager & North (a subsidiary of Royal Bank), CI Financial, AGF Management, and Investor's Group also have customer service people who will help get you set up.
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. But you'll need to open an online investing account with 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 mutual funds or exchange-traded funds (or stocks or bonds) you want, all from the comfort of your own home.
But the do-it-yourselfer will need to choose an asset allocation on their own. Based on current capital market expectations and assuming a medium risk tolerance, I'm going with five per cent cash, 40 per cent fixed income, and 55 per cent equities. If you're 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.
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 per cent. I don't recommend money market funds, treasury bills or 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, 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 per cent 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 per cent into the iShares DEX All Corporate Bond Index Fund (TSX: XCB), and 20 per cent into the iShares DEX All Government Bond Index Fund (TSX: XGB).
For equities, I'd put half of the 55 per cent 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.
But you'd better get moving. The deadline for 2012 contributions is March 1. David West is a certified financial analyst and a regular contributor to Fund Library.
This article is provided courtesy of Fund Library, which is owned and operated by Fundata Canada.
This article is the opinion of the author and is not intended as personalized investment advice. Investment vehicles mentioned are not guaranteed and involve risk of loss.
Contributing writer
