It’s that time of year! That time we have all been waiting for…. RR$P time!
It is where we look at going in droves to contribute or top up our current RR$P, before the deadline (February 29th) to help minimize our taxes for the 2015 taxation year.
While many may not be as excited this time of year, given the state of the current market environment and the holiday bills behind us, we must avoid that ‘noise’ and stay true to what it really is intended for. Save for retirement.
Here are some tips and tricks to help you when it comes to helping you make an informed decision this time of year.
Keep your Long Term Goal in Perspective
What is your long term goal? When you first opened up the RR$P, you would have had that conversation with your professional advisor.
You would have discussed your time horizon, risk tolerance and investment knowledge. This is completed on a document entitled KYC (Know Your Client). This is one of the many documents completed in helping the professional assess your goals and objectives. From there, different options are discussed (and portfolio designs).
During periods of volatility, we need to go back to this moment when it was completed. When you sat down with your professional, this is what you had communicated to them. So keep that focus and look towards the long term horizon when contributing.
While life changes, for whatever reason (job loss, divorce etc.) it’s important to let your professional know so your long term goal can be re-adjusted. Generally speaking, this assessment and discussion should be completed once a year in an annual review.
One of the biggest mistakes individuals make is in the ‘heat of the moment’, to panic and sell in the short term while not focusing on the long term. It defeats what you are trying to achieve – RETIRE.
Keep your Emotions Out in Your Decision Making Process
Do not let your emotions take over. It is never a good thing to let emotions take over your RR$P decisions. This will ultimately create more stress, anxiety as well as frustration. When emotions take over, rational thinking is out the door.
Let’s give an example of this. Perhaps this is you, or someone you may know.
When the market is doing well, times are good – emotions take over and we want to get into the excitement. Everyone else is doing it right, so why not you? As a result, we end up getting in and ‘buying’. The challenge here is we than take on a lot more risk. Time and time I’ve seen people who are afraid of losing money, jump into high risk investments to keep up with everyone else and the excitement. We think ‘irrationally’ and tend to go against our overall goals and objectives. Emotion has taken over.
Like all things, what goes up – must come down. Emotions also take over here in this stage. Here, we were not rational in our purchases from above and now that it’s ‘falling’ we start to have fear and panic emotional behaviour that takes over. We want to sell. Get out. We’re now afraid that we are losing and worried as to how low it can go. Emotion is now in control. When this happens, it generally does not end well.
How do you keep emotions out of your decision making process? When you look at your RR$P portfolio or investing, stay true to your goals and objectives. Continue to contribute, while focusing on the long term, not short term emotions. In the end, you will have less stress, anxiety and frustration.
Don’t focus on the small things.
Sometimes the media or ‘investment advisors’ like to focus on the small things. The most prominent example is ‘fees’. They focus purely on fees, in that you should not be paying these fees.
All things being equal, there is more to it. Fees are one component. Agreed. So is risk tolerance, goals and objectives and past returns (performance).
We should never purely invest our RR$P just over fees. Just like we should never invest in it purely over past returns. It’s a balancing act while putting what you want to achieve for the long term against your risk tolerance.
Take a look at it from another perspective. Let’s say you go out and purchase an item. Item A you purchased cost less, as price was your main focus. Item B cost a little more, but is made of better quality. What generally happens in a year or two? If you purchased item A you are replacing it. It did not meet your goals and objectives. Ultimately, it cost you more.
The same is true for your RR$P portfolio. It may not only cost you in dollars (fees or performance) – but non qualitative features such as time.
This is why you should not focus on the small things, but the big picture. While weighing out all the options.
As part of my process in meeting with a client – we go through all of these features, and ultimately discuss what’s best for you in your overall portfolio.
Obtain Professional Advice
As much as I’m a big fan of Google, Google does not replace professional advice and that personal touch. The personal touch is more valuable than any computer can bring.
It is proven that those who obtain professional advice end up doing better in the long term and have more wealth.
Take a look at it from this perspective. Wealthy individuals do not fix their own car, do their own taxes, build or renovate their own house, represent themselves for any legal matters. They also don’t design and manage their own retirement portfolio. They seek out a team of professionals, while being engaged in the process. They do not turn a blind eye and tell someone to ‘do it’ – but they consult and discuss with their professionals what they want to achieve. They are informed and up to date.
This is why it’s important to obtain professional advice. It generally is recommended that when you are in the process of doing that, to ask questions on how they can help you achieve your goals and objectives. Most importantly – go with your instincts. If you get a weird feeling or vibe, it’s probably for a reason.
The professional should also represent your best interest, not theirs – in looking at building a long term, professional relationship. If someone is recommending you a product (solution) in the first meeting, you may want to move on. The process (fact finding to implementation) takes more than one meeting, in helping them understand what you want to achieve.
Personally, whenever someone is in the early process of this (after they were informed of my process), they are encouraged to speak with other individuals to help them make an informed decision. They are also provided with a checklist of questions to ask these professionals (after we had completed it together from my perspective) in helping them reach this decision.
As you can see, even though we are in the RR$P Frenzy, we need to be vigilant as to our overall goals and objectives, from a long term perspective. We also want to keep emotions out of our decision making process, and not focus on the small things. Most importantly, professional advice goes a long way.
To learn more about RR$Ps, or to have a complimentary conversation or review in this area, don’t hesitate to reach out with the contact information below.
Have a great February and looking forward to the next blog in March!
This BLOG is written by Ken Krakar from Protect Your Finances. As an independent, preferred broker – I help protect my client’s financial health and wealth. Follow me on Twitter @protectfinances . Like our page on Facebook at “Protect Your Finances”. Connect with me on LinkedIn at Ken Krakar CHS. Please e- mail me too if you have any questions about this, or any other matter as it relates to your personal finances. I can be reached at [email protected] .
E&OE. This blog is for information purposes only, and after consulting with a professional will you be able to determine how it affects your unique situation.