Just Starting out with RRSP’s
With RRSP season underway, I've been getting a bunch of e-mail from readers asking "what is the best way to start an RRSP". I figure instead of emailing the exact same answer to everyone, I'll take the most efficient route and post it for everyone to see.
Providing that an RRSP is for you, there are different answers for different situations. If you're just starting out, chances are you'll want to put small amounts into your RRSP on a monthly basis. In this case, I would recommend against opening a discount brokerage account, but recommend going with a bank sponsored RRSP mutual fund product instead. Here's why..
Bank sponsored mutual fund products usually provide:
- A decent selection of index based mutual funds where index funds charge lower MERs.
- No commission to buy/sell (discount brokerages would charge a commission)
- The ability to buy partial shares from the small monthly deposit (discount brokerages cannot purchase partial shares)
- No annual fees (some discount brokerages require a min balance before waiving their fees)
Out of all the bank based index mutual funds, the one that I recommend the most is the TD e-Series Funds (not affiliated). With their MER's comparable to Canadian based ETF's (0.30%-0.50%), they are the cheapest index funds available to small investors. The only catch is that you need to purchase the funds online yourself without the help of an advisor which is how they keep the costs low.
As a young investor, you're probably thinking (as I often do), "I can beat those 8% equity returns by picking my own stocks…"
It is possible to beat the market on your own, but it takes research, a lot of work, and a healthy dose of luck. If you don't have the time and/or inclination to do such research, then it's best to stick with index based investing. It is even possible to pick mutual fund managers to do the buying for you, however, statistics show that 75% of mutual fund managers do not even beat the index after their fees.
In conclusion, if you fall under the scenario of someone just starting their RRSP with small amounts to deposit in a monthly basis, then a bank sponsored mutual fund RRSP account may be a solution for you.