Personal Finance

Money Sitting in RRSP for over 2 years as Cash and some other small amount

  • Last Updated:
  • Jan 7th, 2019 11:29 am
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver

Money Sitting in RRSP for over 2 years as Cash and some other small amount

I am very conservative when it comes to investing.

I had plan to invest in my own mortgage (self directed non-arm's length mortgage) and use the interest to grown my RRSP.
However all the banks made me go in circle despite promises etc and I end up renewing my mortgage with them.

Now here I am with no plans for my RRSP investment


I had put in about 40k in rrsp which are in cash form (not invested in anything) and I have about another 30k which I will be using to buy RRSP this year.
I am not sure what to do with the RRSP. Ideally I would like to invest RRSP and use the interest earned to learn/invest in stocks.


What is the best way to start investing for retirement? I am looking at Tangerine and CIBC/Simplii GIC etc and not sure what to do. I have to buy the RRSP on 1'st of March. so got about a month and half before I will need that 30k.
15 replies
Newbie
May 21, 2017
99 posts
14 upvotes
What is your age? How long can you invest for?
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver
@Tkoutlem. In mid 30s. I can invest for long I don’t see any other way of using rrsp unless if the rrsp pot become bigger I would like to buy rental property and hold it under rrsp if possible.
Deal Fanatic
Feb 15, 2006
8283 posts
2560 upvotes
Toronto
Inspire2018 wrote:
Jan 6th, 2019 8:58 am
@Tkoutlem. In mid 30s. I can invest for long I don’t see any other way of using rrsp unless if the rrsp pot become bigger I would like to buy rental property and hold it under rrsp if possible.
Just curious where do you like to buy rental property for $40K? And hold in RRSP?
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver
@ Arrgh I meant far in future if I kept adding to rrsp and If my rrsp increased to significant amount.
Penalty Box
User avatar
Mar 10, 2018
2858 posts
204 upvotes
Actually I had similar problem. I invested in stock related security GICs. somewhere early 2008. One large part got very good return after 5 years. really good. other not much.
So just put it in something instead of keeping cash.

But my main worry is this
Nov 2, 2006
5 posts
I dont care about Ethics, morals, rules or laws. I will apologies only when I get caught.
I try not to apologies but sometimes do it. not because its right thing but it benefits me.
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver
callernamet wrote: But my main worry is this
What that tell us is that I am a good listener/reader.. jk..

Actually I figured about the forum very late RDF was my go to Boxing Day deal site only till this recent new year.
Deal Addict
Jun 3, 2009
4695 posts
818 upvotes
Montreal
With a zéro risk tolerance, you could buy a 5 year GIC paying over 3% annually or a market linked GIC if you don't want some minimal market exposure with capital waranteed.

With your young age, it would be unwise to not invest in the markets.
Sr. Member
May 28, 2007
797 posts
223 upvotes
Being very conservative and not wanting any risk, you can put the RRSP money into GICs, whoever is giving the best rates. Ladder it from 1 to 5 years. Although with a rising interest rate environment, maybe put more closer to the 1-2 year terms. That way, if rates do rise more, you can reinvest in the higher rates when the 1-2 year GICs expire. Granted you won't make the high returns like some people say they make, but you'll sleep better at night and your money will grow, although at a slower pace, but you know you won't lose any of your principal. And it's much better than just leaving it in cash where you're not earning anything and the bank is making money off your money for free.

You can also put a little into index ETFs or index mutual funds or balanced funds.
I'm no expert, but this is just my opinion.
Deal Fanatic
User avatar
Nov 19, 2004
8587 posts
1623 upvotes
Cambridge, ON
You can't buy and hold a rental property within your RRSP.

So if you plan on loading up your RRSP and then withdrawing it all at once to purchase a property , be prepared for a large tax hit. You are basic defeating the whole purpose of the RRSP.
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver
don242 wrote: You can't buy and hold a rental property within your RRSP.

So if you plan on loading up your RRSP and then withdrawing it all at once to purchase a property , be prepared for a large tax hit. You are basic defeating the whole purpose of the RRSP.
@don242. I was not planning to take out the RRSP but invest through self directed non-arm length mortgage plan into my own mortgage.

It is like investing in anything except the mortgage is yours and if you miss payment you can still lose your house as it is administer by some institute. The interest rate you set is how much your rrsp will increase at. I found the idea better because I know that I won’t default on my own mortgage:)

However there are lots of conditions etc to get the product and the couple banks ok’Ed me however when the time came to actually implement they had some conditions I.e mortgage has to be new and property has to be brand new etc. There wasn’t enough time left to explore this so I end up renewing mortgage with bank.
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver
cn_habs wrote: With a zéro risk tolerance, you could buy a 5 year GIC paying over 3% annually or a market linked GIC if you don't want some minimal market exposure with capital waranteed.

With your young age, it would be unwise to not invest in the markets.
@cn_habs where can you research these GIC products ? Also, if my principal is safe I don’t mind taking high ( but calculated ) risk with earned interest only. That is something I can live with without losing sleep.
Deal Addict
User avatar
May 11, 2014
3225 posts
2769 upvotes
Iqaluit, NU
I apologize in advance for a very long post, but I ask that you read what I say. I will also say how you should go about GICs at the end if you want to continue an ultra-conservative portfolio.

I am assuming you feel stocks and equity is very risky. Stocks in general have a way of going up and down. You can see headlines especially last month how stock prices are at a record low, Dow Jones is down 6% today etc. etc. Those kind of news reports are very scary and can scare the everyday investor away from the market. But in reality, unless you sell at the price, you haven't actually lost money. Additionally, it is very important to remember that everything you do has risk in it including depositing money in the bank. While the overall number will/should never go down, what often happens is that your money will not grow enough to beat inflation. For example, a savings account at Tangerine grows at 1.25%, but the inflation rate in the country is 2-3%. This means every year your money in Tangerine while growing a bit each year, that money can buy less each year because inflation means you need 2-3% more to buy the exact same thing. You say you had nearly 20-30 years before retirement which means that can easily mean that your money stuck in savings over 30 years could be worth 1/3 less (in what you can buy today) if you stick to a savings account. And while GICs will pay higher interest, you can still run into the same problem, maybe just not as much.

This in itself is also a type of risk. You also mentioned buying rental property. This can be a great investment, but what happens if a disaster strikes and the house burns down to the ground? You may have insurance, but that might mean not getting rental income. What if you have a bad tenant that causes damage? etc. etc. I'm not saying stocks are not risky, but everything you do has risk in it.

I like equity for a few reasons. While the everyday price can go up and down, they (if you buy a diversified fund) will represent ownership of the companies everyday people use. They pay dividends from the profits they make, and they are managed by the directors of the companies you own, so unlike a rental property, very little work you have to do. The reason why I believe people think stocks are riskier is because of how easy it is to sell a stock. You can go to a computer, punch in a few keys and done. Because of human nature and just the everyday economy, thousands of shares are traded and prices can swing wildly with people's emotions.If people could sell houses within a couple minutes, prices would likely swing just as crazy! If each building and house in the country had an electronic ticker board where anyone could place a bid for the house or a sell price, even if the house wasn't for sale, the prices would go up and down on a whim and would look inherently riskier.
If you buy a fund that buys large, well established companies, you can generally know that you own companies with fairly strong businesses that last many years. They also generally pay a dividend which can be kept as cash as well. And despite the fact that prices could fall, the world economy more or less keeps going and stocks have generally recovered after downturns.

I don't want you to do things that make you uncomfortable, but I do want you to still consider placing some money in equity even a tiny amount so that you diversify a bit. Having money in GICs, property and some equity is probably the least risky way to go about. By doing so, your assets are spread around different things so that you mitigate the problems that can come with owning each of the things.

A fund I really like called Saskatchewan Pension Plan might work well for you because this is a fairly conservative fund that invests 50% stocks, 40% fixed income/bonds and 10% real estate and is managed by the Government of Saskatchewan. The fees are fairly low and importantly, you cannot cash out until retirement. https://www.saskpension.com/ And if it means anything, this fund has existed for 32 years, and it's 31 year average is 8.10% a year. While there is no guarantee they will continue to do this, it is a bit of history.
Consider placing 5-10% of your RRSP money in here or other low cost automatically managed funds (Wealthsimple, Wealthbar etc.) just to try it out. 5-10% of your money isn't much but more an exercise to understand your risk tolerance. Remember only half of that is actually in stocks and the rest are in things you are comfortable with, deposits and real estate. Then don't look at the value of the funds for 10 years and just take a look and see.

If you wait to use the interest you earn on your money only to do stocks, you won't have anywhere close enough to start to do anything. I would reorient your goal by taking a small amount of your portfolio with a low cost fund to understand and experience first hand your money being invested. Another nice thing with SPP is that they are very transparent and their 4 month updates give you an understanding of what is going on with your investments to get yourself understanding the markets.

Now in regards to your RRSP plan with GICs, any specific reason you can only put it in March 1st (is it because you have to wait for a GIC/Term deposit to mature, if so disregard this question)? If it is because you want to make sure the money is counted toward the 2019 tax year, I would just deposit right away because January and February count as either 2018 or 2019, it doesn't matter.

Now that out of the way, any reason why specifically Simplii or Tangerine? While these banks are better than CIBC or other big 6 banks, the interest rates at these institutions are not the highest. Because of the fact you are taking an already conservative portfolio, at the very least, you should try to increase the return you can get on your money. As long as you invest under the CDIC or deposit insurance limits of your institution, you are protected and shouldn't worry.
Oaken Financial and Achieva are really great institutions in your case as they pay really high interest rates, but they also do not charge money to transfer RRSPs out of the institution. For example, let's say you do not like them or want to invest your RRSP money somewhere else, these two places do not charge anything to send the RRSP money back to say Tangerine, Simplii or any RRSP account for that matter. Plus the interest rates are higher...

Savings Account

Achieva 2.40% (plus $1/month is paid if you ask for electronic statements)
Oaken 2.30%
Simplii 1.25%
Tangerine 1.25%

For a 5 year GIC

Oaken 3.60%
Achieva 3.50%
Simplii 3.40%
Tangerine 3.40%

There is nothing wrong technically with a GIC only portfolio. Just keep in mind, you will likely have to save more than other people who invest as they need to make up for the fact that you have to save more and longer to achieve the same result. I recommend you take a look at @Germack 's thread of his 16 years of investing. He buys his own funds and he has taken track and posted his results in the investing forum. couch-potato-investing-last-12-years-tr ... s-1489988/
He saves diligently, and consistently every year without selling and has built a nice nest egg. There are years the investments go down, but by continually adding and looking long term, they recover and his wealth builds up further.

Lastly if you are interested in investing, start reading personal finance columns of newspapers such as Financial Post, the Globe and Mail etc. There are also books out there such as The Wealthy Barber etc. If you have questions about investing, please feel free to join us on the Investing forum.
Support your local Credit Union!

Sask Pension Plan Upto $6200/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Deal Fanatic
User avatar
Nov 19, 2004
8587 posts
1623 upvotes
Cambridge, ON
Inspire2018 wrote:
Jan 6th, 2019 8:49 pm
@don242. I was not planning to take out the RRSP but invest through self directed non-arm length mortgage plan into my own mortgage.

It is like investing in anything except the mortgage is yours and if you miss payment you can still lose your house as it is administer by some institute. The interest rate you set is how much your rrsp will increase at. I found the idea better because I know that I won’t default on my own mortgage:)

However there are lots of conditions etc to get the product and the couple banks ok’Ed me however when the time came to actually implement they had some conditions I.e mortgage has to be new and property has to be brand new etc. There wasn’t enough time left to explore this so I end up renewing mortgage with bank.
Ah OK. I saw that in your original post, but wasn't sure by your subsequent post if that was still the intention. Not that familiar with a non-arms length mortgage plan, but I didn't think they were worthwhile after you pay all the fees.

As for what to do with your RRSP now, really depends on your time frame and risk tolerance. If time frame is truly not an issue, then markets are probably best. But if want the money available for a property in the next ~10 years, then more conservative is better, especially if your tolerance for risk is low.
[OP]
Newbie
Nov 2, 2006
26 posts
4 upvotes
Vancouver
@xgbsSS @cn_habs @RCML27
Thank you all for the reply.

Due to the tough financial situation in young age, I am wired with zero risk tolerance. Despite I am doing well now and very comfortable those old habits are just hard to break. (I realized it is not smart)
My whole strategy was to buy couple properties and just pay them off before retirement (which I am on track for). They have gone through a significant price increase and are net positive at this point (even my principal residence).
The property gives you that fuzzy feeling that your principal is safe and increasing in value (which might not be true in coming years) and the rent was just a bonus.
Also, I was not touching the rent and just basically collecting it to make down payment for the next property.

I had zero expectation that my RRSP will ever grow and was just betting on just pure saving, enough principal for retirement so I can be comfortable.
I like the fact that RRSP just reduce your income and you get that instant gain in form of the tax return. That is basically how I saw RRSP and that is the reason It is sitting as cash.

All the reply were such a wealth of Knowledge. I have read it very carefully like 3 times to soak in all the information. :)

You are absolutely right about that everything has a risk.
I have gone through a nightmare tenants situation where we weren't paid rent for 7 months and had to follow through court/eviction etc.. so there are risks and very significant risks in my current strategy and I just never saw them before.
Since from the start I wasn't really depending on rent so it didn't feel bad. ( I was just mindlessly saving pretty much that rent pot)


Here is what I am thinking of after reading all the replies.

1- 90% RRSP money into GICs, Ladder it from 1 to 5 years.as per @RCML27 &10% in Equity i.e. SPP. Hopefully, I will become comfortable in the coming year and start diverting my GIC into high return portfolio as GIC mature.
2- Tax return use it to look into Equity Funds under TFSA umbrella.
3- I do side projects etc. whatever money I get I will start investing in Equity funds. I look at them as bonus/fun allowance anyways :) and this is a significant amount usually
4- I will keep going with the strategy of buying property using the rent saved. ( that collection amount I will put that in saving account Achieva 2.40% or Oaken 2.30%) until it is enough for downpayment maybe under TFSA.
5- Will participate more on Investing forum, learn and read finance column and all other sources.

There is no specific reason for waiting till March 1st. It is just that funds were not locked in to RRSP for another month and a half.
I will look into Oaken / Achieva. The only reason I was considering Simplii etc is that those are the only ones I knew.

If you see any flaws in my strategy feel free to comment and share the words of your wisdom. ( I am very down to earth and don't get offended) . I have to break through my shell of super concervative approach and I will do it in baby steps :)

One question I have is how to really improve your gains are all your funds managed under TFSA/RRSP and if not what strategies are there to improve those gains if funds are in non-tax shelter accounts.

Top