Market turmoil not scaring away RRSP investors

With the markets moving up and down like a roller coaster, it would be understandable if investors were getting a little panicky. So it might be surprising to learn that 60% of RRSP-owning Canadians say they are not concerned at all about the recent market turmoil.

“I was a little bit surprised, to be honest, that people weren’t more worried about market volatility,” says Kim Buitenhuis, vice-president, RBC Asset Management, commenting on the 18th annual RBC RRSP Poll. “I was very encouraged to see most Canadians are seeing past the market turbulence.”

The survey, released Friday, also says that the 40% of people who are concerned about the markets have not made any changes to their RRSPs. That could be shocking to some, especially because mutual fund sales, which 55% of those surveyed hold in their portfolio, have been taking a beating as of late.

Buitenhuis says despite mutual funds’ downslide, its still one of the best investment options for RRSPs. “When people look at their options going forward, mutual funds will remain the most popular. There’s a great variety in mutual funds that are more or less risky. People are basically saying, ‘I think a mutual fund of some kind is a good choice.'”

So why aren’t people more concerned about their investments? Buitenhuis chalks the answer up to investors becoming more knowledgeable about the financial industry. “Investors are becoming more educated, so they understand, on their own, that market volatility is a normal thing.”

She also thinks more financial advisors are teaching their clients that market volatility is normal and that it’s best to remain invested.

“Investors realize now that when you’re saving for an RRSP, it’s a long-term thing,” says Buitenhuis. “When you have a long-term outlook, these short-term disruptions are not the most important things in day-to-day investment decisions.”

Whether investors will be able to keep the long-term view in mind into 2008 is anyone’s guess, but Buitenhuis thinks if anything prevents people from adding more to their RRSP in the future, it will be the usual things, such as procrastination.

As of right now, the future of RRSP investing looks good. The survey found that the average planned contribution for this year is $5,967, up from $2,866 in 1993. Ownership is on the rise as well, with 68% of Canadians investing in RRSPs, up from 57% in 2002.

The survey also found that only three in 10 Canadians plan to maximize their RRSP contributions this year. Buitenhuis says it’s hard for people to invest the full amount every year, but advisors can help their clients reach the total by encouraging them to invest on a monthly, planned basis, rather than using a lump sum.

“That’s an important role that advisors can and should play,” says Buitenhuis. “There’s an advantage in terms of dollar cost averaging, so it’s a better way for a client to invest.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com