Maximize your RRSPs with calculated risks

RRSPs are still the single most effective way to prepare for retirement and taking small calculated risks in your portfolio could payoff more than you ever dreamed, according to a top Canadian investment advisor.

Patricia Lovett-Reid, a certified financial planner and senior vice-president at TD Waterhouse Canada Inc., compares investing to a physical fitness routine. It’s easy to get in a rut, she said.

Recession-wary Canadians want better results from their portfolios but aren’t taking on the risks necessary to achieve them.

“Calculated risk means moving a little outside your comfort zone,” Lovett-Reid told QMI.

The key is to move slowly. Start by investing in government bonds before moving into corporate bonds, then into Canadian large-cap dividend paying stocks, then into a global option and so on.

A financial planner, just like a personal trainer, can help you set and achieve goals safely without over-extending yourself, she said.

Lovett-Reid expects big payoffs in 2010 from investing in corporate bonds, large-cap dividend paying options, resource companies, eco-tech firms and infrastructure projects.

Corporate bonds are once again expected to outperform government bonds.

“Not by as much as we’ve seen in the past. But corporate bonds will once again be on top,” she said.

Canada is a resource-rich nation and with Asian imports up 55% thanks to growing demand for agricultural, crude oil and metal products, according to TD Waterhouse, the sector is almost a sure bet.

Federal stimulus dollars are also finally beginning to trickle down to real projects on the ground which means now’s the time to invest in green technology firms and government infrastructure projects, Lovett-Reid said.

She also suggests avoiding consumer discretionary markets in the U.S., as jobs and confidence remain low south of the border.

It still makes sense to put your money in consumer staples however, such as pharmaceuticals,

utilities and discount retailers.

And a little exposure to gold can’t hurt either.

“But I wouldn’t bet the farm on gold,” she said.

The economic rollercoaster of the past year, combined with an unemployment rate of 8.5% means, Canadians are contributing less to their RRSPs.

In fact, a recent RBC study found Canadians are paying less into their plans and declines are expected through 2020 as the population ages.

But RRSPs can’t be written off as just another moneymaker for the rich. That’s because the lower the tax bracket you fall into at the time of retirement, the bigger the payoff will be.

If you’re in your 30s, 40s or 50s and you haven’t opened an RRSP account, you need to, Lovett-Reid

said.

The tax deductions associated with RRSPs as well as the power of compounding in terms of time and growth inside the plan are unrivaled.

When the desire to meet today’s needs eclipses retirement planning, people suffer financially, she said, referring to safe but low-yielding investment vehicles and debt repayment.

Try to envision your ideal retirement and reverse engineer that into monthly contributions to realistically prepare.

“You’ll find you’re better off than you think, but you’re not there,” she said.

Lovett-Reid puts regular RRSP contributions high on the financial priority list, right up there with paying taxes.

“I have to pay government taxes. I have to pay myself. Because I value myself as much as the government values me as a taxpayer.”