The frustration with Registered Retirement Savings Accounts

Recently several people with Registered Retirement Savings accounts held with broker/dealers and planners have commented to me that they are frustrated with RSP’s and they are wondering “what is the point?”
The source of this frustration comes from their experience of diligently plopping in annual contributions to registered plans, and seeing little to no growth or outright losses year after year. This is very hard to take. But I would like to get one thing straight. It is not RSP accounts that are the problem here. It is the crap bad investment products people are buying inside RSP accounts that are causing the problem. As I have said before, a flashy car with a defective engine will get us no where fast.
You do not have to buy high risk, high fee assets within your RSP and RESP (registered education savings plan) accounts. Continue making your contributions. Savers in North America receive a valuable deferred taxation benefit and tax sheltered growth on assets we hold inside of registered accounts. It is easier to save into tax sheltered accounts with before tax income than to save outside of sheltered accounts with after tax income. These are worthwhile benefits in their own right.
The trick is that once you have contributed your savings into your retirement plans you must be extremely careful with what you invest your savings in. High fee, long always products like venture capital funds, stocks or equity mutual funds are more likely to erode your capital each business cycle than they are to appreciate meaningfully within your life time. Since most advisors and investors do not have a management discipline that determines when to buy and sell equity investments, most simply buy equity investments as soon as you contribute savings regardless of asset price level or where we are in the business cycle. This is the path to almost certain losses for passive investors.
If you have no management discipline, and your advisor has no management discipline, then stopping paying high management fees for management you are not getting!! You can fare much better with your savings buying guaranteed deposits (GIC’s) or even money market funds at your local bank branch with your RSP contributions. You don’t have to buy equity investments every time you have savings. Unless and until you come up with a management discipline or retain an asset manager who has an actual method for protecting your capital from down markets, do yourself a favour—keep your capital parked, safe and dry.
Recent IFIC numbers for January show that there have been large out-flows from equity funds into money market funds during the market turmoil last month. As I said to The ROB this week in “'Fear factor' sees investors bolting equity funds in January” , I take it is a sign of life that previously complacent investors finally realize that they do not have to always buy and always hold equity funds with their savings.
But: “…it is unfortunate that retail investors only recently realized how delicate the markets were, and pulled money out of equity funds after stocks had plunged.”
The signs of danger to capital were so vividly apparent over the past couple of years. But to see the signs and leave before the losses mount requires one to have and follow an actual management discipline. An objective market timing discipline is precisely the thing that most retail investors and advisors lack.
Given the overhang issues still before us in this ongoing slowdown, and given the still relatively high equity valuations in this contracting earnings period, selling and moving to cash or money market now is still likely to prove 'better late than never' as we find ourselves a few more months from now.

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