04/18/2016 05:56 EDT | Updated 04/19/2017 05:12 EDT

It's Time To 'Un-Park' Those Last Minute RRSP Contributions

A glass jar resting on its side with Canadian banknotes and change inside.
TonyIaniro via Getty Images
A glass jar resting on its side with Canadian banknotes and change inside.

There's nothing quite like the satisfaction that comes with scoring a prime parking spot. Except when that spot is inside your Registered Retirement Savings Plan (RRSP) and your "car" is a last-minute contribution.

It may be stashed in a money market fund or in a savings account that you intended to be temporary while you figured out a better long-term plan. Too often, investors forget to "un-park" their contributions. While holding cash and cash equivalents can be useful for short-term savings goals, their relatively low returns combined with the effects of inflation can add up to trouble.

Sound familiar? Now is a great time to re-visit your portfolio. Investing too conservatively could impact your ability to reach your long-term goals. In fact, you could actually be losing money once you factor in inflation, especially in today's low interest rate environment.

Growth-oriented investments such as equities can help counter the effects of inflation. Portfolios that include diversified mix of investments, including equities, have the potential to provide higher long-term returns than cash investments. Here are a few tips to keep in mind:

Review your RRSP portfolio regularly.

Have a look at what you're invested in and how it relates to your overall financial goals. It's important to review your plan periodically to capture any changes in life circumstances. A marriage, divorce, new baby, career change or serious illness can dramatically affect your financial plan. Even if you don't experience a major life event, your strategy will change gradually over time.

Explore a "managed" solution.

A managed solution picks a mix of investments based on your age, risk tolerance and investment objectives. One option for your RRSP contributions could be a mutual fund or asset allocation solution that is actively managed and meets your risk tolerance. This way, you don't have to decide what asset class to invest in -- such as Canadian equities, U.S. equities or bonds -- every time you make a contribution.

Consider your opportunity cost.

I've worked with a client who was so afraid of investing that she left most of her money -- reaching a significant portion of her investible assets -- sitting in a savings account. Once I showed projections and put a dollar figure to what that cash could have returned had it been appropriately invested and demonstrated how her current strategy was affecting her long term retirement goals, the client was on board and ready to invest.

This is hardly unique -- the 2015 Investor Sentiment Report by Sun Life Global Investments revealed Canadians were holding around 25 per cent of their portfolio in cash. Review your cash holdings and consider if your money could be working harder for you.

Take a holistic view.

It's critical that decisions are not made in isolation. Consider the broader view -- what are your overall family goals? Are your assets, including RRSPs, non-registered investments and TFSAs, invested in a way that will help you reach them? A financial advisor can help you come up with a plan that fits your circumstances.

This article is provided for general informational purposes only and should not be considered specific financial advice. For advice specific to your circumstances, please speak to the appropriate tax, investment or insurance adviser.

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