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Deadline approaching. Do you know how your RRSP is doing?27 February 2006
The deadline for 2005 RRSP contributions is March 1. At this time of year, many of us are scrambling to organize the funds, write a cheque, and get it into the hands of our financial advisor. But as you go through this annual ritual, do you know how your RRSP is really doing?
Research consistently shows that a significant proportion of investors pay little or no attention to what happens to their investments once they've made their contribution. Why are we not better informed about our investments which, for some of us, are our life savings? And how can we make good on our annual promise that we'll try to pay more attention next year?
It's easy to understand why Canadians aren't better informed. Most communications about investment are dressed up in legal and technical language that could send even the most avid reader into a deep coma. What's more, financial industry insiders sometimes seem to take a perverse delight in sowing confusion. For example, the fastest growing business of the Toronto Stock Exchange is "retail structured products." And what's the short form for a retail structured product? RSP of course, notwithstanding the fact that, for years, millions of Canadians have correctly understood the initials RSP to stand for retirement savings plan.
Regulators are working hard to simplify the language and presentation of information about investment products. So are many financial services companies, which have come to appreciate the market advantage of clear concise communication about their products and services. But while these initiatives are working their way through the system, there's plenty you can do as an investor to figure out what's going on in your own RRSP accounts.
In my view, the best starting point is the statement you receive -- monthly, quarterly or semi-annually -- from your financial advisor or investment company.
Investment statements have improved a lot in recent years. Many of them are organized in a logical sequence, highlight key information, and shouldn't leave you scratching your head in bewilderment. In fact, if yours isn't this way, check around and see what the competition offers. You wouldn't be the first investor to change investment companies in order to get a statement you can understand.
If your statement is well designed, it will give you a summary of key information on the first page, followed by supporting detail. Many investors say they only look at the first page. If everything seems to be on track, they file the statement. If it doesn't, they call their financial advisor. Some investors may be comfortable with this approach. But for your own long-term peace of mind, I recommend that you get a bit more involved.
As you review the information in your RRSP statement, with the help of your financial advisor if required, make sure you learn the answers to five questions:
- What are my investments worth?
- Has their value gone up or down, and by how much?
- What was the percentage change in the value of my investments over
the last year?
- How am I doing compared to the market as a whole, and why?
- How much did I pay in fees and commissions, and what did I receive
in return?
If you know the answers to these five questions, you'll know more about your RRSP than most. And it's an excellent starting point to have a discussion with your financial advisor about how your investments did in the past year, why they performed that way, and how your latest contribution should be allocated.
For further information: John Watkinson is the founder of Simplified Communications Group Inc. He can be reached at (416) 362-7730 ext. 215
Source: newswire
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