Financial Column: One, two, threes of RSPs
Ron Tarter is a licensed investment advisor at Planmar Financial Corp. in London and a third-year Western student. Send queries and comments to email@example.com.
I have been purchasing Guaranteed Investment Certificates within my Retirement Savings Plan. I have watched the stock markets rise an average of 20 per cent per year, while GICs have only earned about 5 per cent. I want to take advantage of the potential gains in the stock markets, but am worried about the risk. I've read articles describing the stock market as overvalued, inflated and on the verge of a major correction. Should I wait until the markets go down or start investing in them now?
Honours Psychology III
It is always the right time to start investing. Corrections in the stock markets are a normal and healthy part of the economy. These short-term fluctuations should not concern a long-term investor, especially when investing in a RSP.
Waiting for the markets to go down is not a good approach to investing. No one can accurately time the market. There are too many unforeseen factors affecting it. Rather than attempt the impossible, invest as much and as often as you can. If you invest for the long term rather than for the 'quick buck' you should see your investments blossom.
Stock markets have potential for higher returns than GICs because it is ownership rather than loanership. Instead of receiving a fixed rate of return for loaning money to the bank, you can take the risk of buying part of a corporation.
Doing so entitles you to receive a fair share of that corporation's profit. Over the past 50 years, the Toronto Stock Exchange has consistently outperformed "fixed income" securities such as GICs and I believe it will continue to do so.
If you're nervous about the risk, yet still want to get involved with the stock markets, start off slow. Perhaps you should only invest a portion of your RSPs in equities until you feel more comfortable.
A mutual fund, which is essentially a pool of stocks any small investor can buy into, will provide instant diversity and expert management. Most conservative mutual funds have averaged at about 15-20 per cent over the last three years. However, choose a fund with an established track record of positive returns.