Make your New Year’s Resolution a Super-Charged RRSP/TFSA

RRSP, and for that matter TFSA, season is upon us once again. And while the benefits of making as large a contribution, as early as possible, is understood by some, the next decision then becomes into what should one invest. Ever wonder what's better, RRSP or TFSA? The answer is “it depends”, but there is a way to calculate it and we can show you how.

Although the suitability of an individual investment for one’s overall portfolio needs to be considered, we believe that fixed income, especially private credit funds, are ideally suited for one’s registered holdings. Benefits include improved tax-efficiency, lower volatility and the possibility of higher returns.

Too often we see people who use their TFSA to gamble on high-risk/high-reward investments. Just a few years ago, many people acquired marijuana stocks inside their TFSA which ended up with them not only losing their investment but all of that TFSA room. As of right now, total contribution room from inception allows for $102,000 in contributions. If you could make a fixed return of 9%, do you know what that would be worth in 20 years? We can show you. But, if you lose that contribution room by betting on risky stocks, it's gone forever.

Every diversified portfolio requires a fixed income component, and such investments invariably provide “interest income” which is taxed at the taxpayer’s highest marginal rate. By investing inside registered accounts, the payment of those taxes is either deferred or avoided altogether. Fixed income also suffers from far less, if any, volatility in comparison to investments in stocks; something especially important for those approaching, or already in, retirement.

And finally, the possibility of higher returns. Despite the ebullient stock markets of recent years, returns tend to revert to the mean which has translated to a nominal return of around 10% p.a. over the last 100 years; not bad if you can handle some gut-wrenching volatility. Our preferred credit investments include debentures that presently pay 12% p.a. and have never missed a payment in over a decade, and a fund that has a compound annual return of 14% since its inception seven years ago.

If you are interested in learning more about how higher-yielding, fixed-income investments can be an ideal fit for your registered accounts, please don't hesitate to reach out. We'd be happy to provide additional insights, and if you already have an advisor, we can work together to enhance your current strategy.