Energize your RRSP: Go Self-Directed
By: Wayne Rothe CFP
If you thought that self-directed Registered Retirement Savings Plans (RRSPs) are only for sophisticated, high-end investors, you may be missing a good opportunity. Anyone with a medium-sized or larger RRSP who wants diversification should consider a self-directed RRSP.
I recommend that you consider a self-directed plan once your RRSP gets up to approximately $40,000, unless it contains only one product (such as GICs). A self-directed plan is particularly useful if you're making regular contributions and you want the diversification from owning different investment products.
The term self-directed doesn't mean that you have to make all your own decisions. A financial planner can set up a self-directed plan for you and will provide complete advice.
So why should you consider a self-directed RRSP? Are there any disadvantages?
A self-directed plan will cost about $100-$125 per year. This fee is usually charged by social insurance number, so an individual can have any number of self-directed accounts and pay only one fee.
I'm a big believer in self-directed RRSPs. A self-directed plan lets you consolidate all of your RRSPs into one plan. Instead of receiving many RRSP receipts and statements from several different financial institutions, you only have to deal with one tax receipt and one statement. It makes tax reporting and record keeping much easier.
For these reasons, if you have several RRSPs (a couple at banks, one with a brokerage firm and one with an independent financial planner, for example), you should consolidate them all into one self-directed plan. If you have RRSPs all over the place, you may think you're diversifying. Actually, you may have less diversification because there could be a great deal of duplication within your portfolio without you even knowing it.
No cash for an RRSP contribution? No problem. You can make in-kind contributions. If you own investments outside your RRSP, you can transfer them into your self-directed plan. If you're in the highest Alberta tax bracket for example, the government pays you $3,900 to move $10,000 in investments you already own into your RRSP. Of course, these must be qualified investments and doing this transfer may trigger capital gains so you should first seek professional advice.
While those benefits are appealing, this next one is my favourite - a self-directed plan provides the flexibility to hold a complete array of investments from many different institutions - stocks, mutual funds, bonds, cash, GICs, even a mortgage. If you want to have a top mutual fund from each of several different categories, one fund company probably can't best satisfy your need. One company may have a terrific Canadian conservative value stock fund, but may be weak in its global mutual funds, for example.
If the borrower chooses to pay the interest on the mortgage yearly, this payment may be tax deductible if the borrowed money is invested.
The ability to mix and match good investments from many institutions should pay off in the form of better returns, which should easily outweigh the small cost. This advantage is huge.
A self-directed RRSP can really energize your retirement savings. Consider going self-directed.
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