So you’ve procrastinated and you’re now scrambling to get your RRSP contribution in by the deadline, tonight at midnight. Fortunately, most financial institutions are electronically capable of taking your contribution, assuming you set it up beforehand. I did my contribution yesterday, with the whole process taking about a minute. If you’re not set up electronically with your broker, then perhaps you’ll have to hustle down to the bank for a meeting with a friendly investment advisor, providing you can even get an appointment today.
Contributing the money is the easy part, providing you have the money. The real challenge is deciding what to invest in. Remember, you don’t have to invest the money you’ve contributed right away; it can sit in cash or a near cash investment in your RSP account, waiting for you to put it to work. While there’s no hurry to invest, many investors will want to pick an investment immediately, before they forget about it.
That’s where this post comes in. Rather than focusing on individual stocks like I usually do, today I’m going to recommend some simple investment ideas for each type of risk profile, investments you can buy today.
Claymore Advantaged High Yield Bond ETF
If you’re an investor seeking dividends and distributions from your investments, this ETF from Claymore Investments may be to your liking. Currently paying a distribution in the 7% range, this ETF invests in high yield corporate bonds in the U.S., because Canada has basically no junk bond market to speak of. Since the fund distributes interest monthly, it makes sense for an investor to hold this in their RSP, deferring taxes on interest which doesn’t enjoy any tax credits. The management fee on this fund is quite reasonable, 0.50%.
Claymore Preferred Share ETF
Next up is another product from Claymore, their Preferred Share ETF. While this fund doesn’t have the distribution of the high yield bond ETF, it is made up of mostly blue chip, large Canadian companies, making this a safer investment than the first choice. The fund currently has a yield of just under 5%, paying the unitholder a 7 cent monthly distribution. One of the nice things about buying this ETF is the price remains relatively stable, making it the perfect thing to buy while you wait for a stock you like to get cheap.
Bank Index Funds
While I’m not a huge fan of mutual funds, the equity index funds issued by the five major Canadian banks are better than actively managed mutual funds (although not nearly as good as exchange traded funds that track the same indexes). The beauty of these index funds is you can go down to your branch and put your RSP money into an index mutual fund in about 14 minutes. An investor doesn’t have to worry about taking care of an online brokerage account and there is the security of working with an investment advisor, if that’s what the investor craves.
Even though I don’t want an investor to pick individual stocks with their last minute RSP contribution, buying the entire sector of an out of favor industry isn’t the worst idea in the world. You’re going to buy the best of the sector along with the worst. When the sector recovers, the worst of the sector will recover with the best, often getting an additional boost because they were so beat up.
Ideally an investor would want to do their own research and identify the best of the sector, giving themselves downside protection as well as upside potential. In a last minute RRSP contribution scenario, buying the ETF of a battered sector is a decent substitute.
Two industries that have been beaten down are the U.S. homebuilders and the shipping stocks. Both ETFs trade on the NYSE, have reasonable management fees, (0.5% or so) are liquid, and pay small dividends. Both are great solutions for investors who want to invest in beaten down sectors, allowing them to take a contrarian stance without doing research on individual stocks.
What Should You Pick?
Ultimately, making the contribution is much more important than investing it right away, since most tax brackets are guaranteed a 25% return in tax savings. If you’re an active investor who likes to pick stocks, it’s better to make a contribution, do your research, and then pull the trigger on a stock buy. If you’re an investor who only wants to look at their investments a few times a year, perhaps one of these picks will suit you. Good luck on your investing, now get off your ass and make that RRSP contribution.