The best RRSP investments 2022 – MoneySense

Guaranteed investment certificates (GICs)

Guaranteed investment certificates (GICs) are another very low-risk investment that you can set up within an RRSP at any bank or financial institution. GICs offer a guaranteed rate of investment on predetermined terms. You could buy a 1-year GIC that would pay, let’s say, a 1.0% rate, or a 5-year GIC that would pay 2.0%. One main drawback is that interest earned on GICs is usually subject to tax rates that can be as high as 50%. When GICs are held within an RRSP, however, they are sheltered from those taxes.

Mutual funds

Professionally managed mutual funds are a popular choice offered at major banks and financial institutions for RRSP investments. Mutual funds are made from a variety of investments that are bundled together in one fund. This makes it easier for your investments to be diversified and, therefore, offer less risk than when compared with investing directly in the stock market. Professionally managed mutual funds do, however, incur management fees that can be as high as 2.0% per year.

Exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) are relatively new to the investment scene in Canada, but are an excellent choice for people interested in exploring a self-directed RRSP that gives you more control over your investments. ETFs are collections of stocks and bonds that are designed to track the stock market over time. So, as the market goes up over time, so does your investment. When the market dips, however, you will also lose money. ETFs are a good option for those who can tolerate some risk and are not considering withdrawing money from their RRSPs in the short term. Robo-advisors that calibrate your investments with a computer algorithm rather than a professional advisor are great options for saving on management fees with ETFs. Consider firms such as Questwealth*, BMO’s SmartFolio and Wealthsimple, among others.

Stocks and bonds

Self-directed investors who want to buy individual stocks and bonds can certainly hold those investments in an RRSP as well. Stocks, in particular, tend to be more volatile investments and should be geared toward people with a higher tolerance for risk who are comfortable taking a long view of maximizing their investment. You can either work with a conventional broker or use an online broker to manage your investments on your own.

What are some ways to leverage my RRSP savings without paying a penalty?

In addition to giving you a tax-deferred place to save towards your retirement goals without, an RRSP is a tool you can tap into to help with two major life expenses: buying your first home; and pursuing further education. In both cases you can withdraw a portion of your RRSP funds without having to pay tax or penalties, as long as you adhere to a specified repayment plan.

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) is a program that allows first-time home buyers to leverage their tax-deductible RRSP savings to use as a downpayment on their home. It essentially allows home buyers to borrow up to $35,000 per person from their RRSPs and then repay that money back into their RRSPs over a 15-year period. Any failure to meet the scheduled repayments in any given year will result in having the unpaid amount taxed at your top rate. 

Lifelong Learning Plan (LLP)

The Lifelong Learning Plan (LLP) is a similar program that allows RRSP holders to withdraw money for the purpose of pursuing additional education. You can withdraw up to $10,000 per year and up to a total of $20,000 and are given 10 years to repay the full amount, in the same way HBP withdrawals are repaid. The LLP can be used to pay for your own education or your spouse’s, but not your children’s. Once it is repaid in full, you are free to use the program again.

What’s my RRSP contribution limit?

Canadians can also choose to invest their savings in tax-free savings accounts (TFSAs). There are circumstances that would make a TFSA (which does not defer tax on contributions and instead offers tax-free growth and withdrawals at any time) a smarter choice. If you think you might need the money before your retirement, a TFSA will allow you to withdraw as much as you want, whenever you want. The flip-side of that equation, however, is that easier access to your money might derail your retirement planning in the long run.