Thursday, December 5, 2024

RRSP Q&A: Who should have seg funds in their RRSP portfolio?

Describe the type of investor who would benefit from having segregated funds in their RRSP portfolio. Should I avoid these funds if the MER is over 2.75% and the hold period is ten years? – Philip

Barbara Garbens: Distributed funds provide an individual with a guarantee that he or she will not lose money if market conditions are not favorable. A prudent investor who may want to have some market exposure can invest in segregated funds because of this guarantee.

There is usually a set period of time that you have to stay in the fund, in your example you said 10 years. For someone who absolutely won’t need the money, this could be a good place to put the cash, but they need to be sure the investment is solid because switching funds mid-term isn’t that easy.

Segmented funds also provide evidence of a creditor, which may be taken into account if a person is at risk of bankruptcy or will have to default on certain debt obligations.

Finally, I don’t think that 2.75% in itself should be the only criteria to look at when making a purchasing decision. There are many selection criteria when choosing a mutual fund (yes, seg funds are a type of mutual fund). Look at performance, who the manager is and how long they have been there, fees, quartile ranking in the peer group, volatility, and possibly holdings if you get into that level of detail. You don’t want to duplicate a position you may have elsewhere on some farms.

Next question: I’m new to Canada and want to save $200 a month. What’s the best way to save for retirement?

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Do you have another idea? Let us know in the comments.


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