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By: Tony Wanless
Smart Money
The Province
February 11, 2001
Are you going nuts right now, trying to figure
out what to do with your RRSP this year?
Many people are. It's been a crazy year and everybody's
running scared, so there's much advice out there
about where you should stick your stash.
If the please-help-me calls I'm getting are any
indication, most people are going about this all
wrong. They're concentrating on the short term,
the right now, and forgetting the long term, the
future.
Vancouver financial advisor Adrian Mastracci,
who has long advocated that everyone should build
a financial "blueprint" for their investment house,
has observed that most people put more time into
individual investments than they do into their
overall plan.
I certainly agree. If you don't have a plan,
you're going to be constantly reacting to financial
events, sales pressure and other mostly irrelevant
fiscal stimuli.
So here are some suggestions to help regain control:
FIND YOUR PLACE ON THE RRSP GRID
Are you beginning, in the middle, or near the
end of the RRSP marathon? This factor governs
how much money you have right now, and how much
time you have left until you retire, and these
two factors in turn govern most RRSP decisions.
Generally, if you have little money in an RRSP,
say less than $50,000, you're early stage, in
the accumulation phase, so just save it the best
-- and safest -- way possible.
Once you get more, you can get into investment
planning, diversification and portfolio management.
DO SOME PROJECT MANAGEMENT
An RRSP is just a really long project -- in this
case, the construction of a retirement fund or
personal pension. So why not approach it as people
who manage projects for a living do?
That means you figure out the end point, or goal,
first and work backwards from there. For example,
if you know you want $50,000 a year income when
you retire, you can calculate how much money you're
going to need to generate that much income.
Then, taking into account what you have now,
and various other factors such as your company
pension, Canada Pension and your house's value,
you calculate how much you have to contribute
and earn to get that big pot at the end. This
will also allow you to set up benchmarks, or milestones
-- for example, in 10 years I should have this
much.
FORM AN INVESTMENT STRATEGY
If you're in mid-retirement-planning stage,
you probably have a pretty good stash. But do
you have an investment plan? Most people don't.
So, rather than buy stuff willy-nilly, which
is strictly tactical thinking, start working on
some investment strategies. This means knowing
where you want to go; efficiently allocating your
investments across cash, income and equity asset
classes (it's called finding the efficient frontier,
the best balance of risk and return); and forming
a structure you can use as a backdrop for all
detailed investing decisions.
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