RRSPs still a very good hedge for retirement

(NC)-RRSP season can be a confusing time for even the most sophisticated of investors. Here are the top three questions Canadians are asking this RRSP season:

In these uncertain times, why should I consider investing in an RRSP?

For most people, making an RRSP contribution makes great sense, even during tough times. RRSPs let you save money by earning income on a tax-deferred basis until you retire. For many, they can act as a substitute to a pension plan and ensure future goals are met.

How much should I contribute to my RRSP this year?

It is important to build up your RRSP savings to ensure you have a nest egg that will support you through your retirement years.

According to Tina Di Vito, Director, Retirement Strategies, BMO Financial Group, “In an ideal world, you would set aside the maximum contribution limit for your RRSP every year. If you cannot manage to contribute the maximum, then try to contribute as much as you can. One of the best ways to grow your RRSP is to use a Continuous Savings Plan to automatically contribute every payday.”

Given the volatility of the economy, what types of investments should I choose when it comes to my RRSP?

This will, in part, depend on what kind of investor you are. An investment professional can help you determine that. In the meantime, here are some general RRSP investment guidelines:

  • Diversify. Putting your money in a variety of investments provides exposure to a wider range of opportunities and limits the negative effects of a downturn in one market or asset category.
  • Examine your foreign content. Investing outside Canada gives you access to the other 98 per cent of world markets, providing you additional opportunities for growth and diversification.
  • Consolidate your investments. If you do not want to spend a great deal of time managing several plans, you may want to consolidate your investments into one portfolio and get one consolidated statement to track your plan.

Knowing the answers to these questions can help, but it is still important to speak to an investment professional.

Visit your local BMO branch before the 2009 RRSP deadline of March 1, 2010.

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