The year 2023 has not been easy for savers, particularly with inflation and rising interest rates. What do you do with your registered retirement savings plan (RRSP) in these circumstances? Should we change plans or rather stay the course despite economic upheavals? Three experts attempt to answer this big question.
Inflation is disrupting Quebecers’ plans. According to a survey carried out at the end of 2022 by the Financial Planning Institute, nearly half of Quebecers said they had changed their financial goals, and two-thirds, their spending habits. No less than 53% of respondents also indicated that they had experienced a greater level of stress due to the considerable increase in the cost of living.
The economic situation creates “anxieties and challenges,” recognizes Carl Thibeault, senior vice-president, Quebec and Atlantic, at IG Wealth Management.
PHOTO CHARLES WILLIAM PELLETIER, SPECIAL COLLABORATION
Sylvain De Champlain, president of De Champlain Financial Group
Sylvain De Champlain, president of De Champlain Financial Group, believes that we must put things into perspective. “Yes, last year was tough with inflation and rising interest rates. But the stock markets experienced an exceptional rebound, beyond forecasts,” he emphasizes.
A balanced portfolio thus generated returns of around 10% while a growth profile gave between 15% and 17% returns.
Savings are doing well
François Martel, regional vice-president, financial planning, at BMO, agrees. “The savings component performed very well in 2023. Interest rates on guaranteed investments and bonds have never been this high in around 15 years. The stock market has also stabilized. » No reason, therefore, to panic.
Sylvain De Champlain adds that the risks of recession are “minimal” this year. “We should see a drop in interest rates over the summer. Same thing for the key rate of central banks. This will have a positive impact, particularly on bonds. » Stocks should also see good growth.
Make a plan (and stick to it)
In times of turbulence, he advises establishing or reviewing your investor profile. “The important thing is to determine your risk tolerance,” says Sylvain De Champlain.
You then need to put an action plan in place. As is often the case, there is no miracle recipe that applies to everyone. It all depends on our goals and our expenses.
Once the goals are established, you need to see what investment vehicle you need to achieve them, and for how long – realistically! – we will need to get there.
Carl Thibeault, Senior Vice-President, Quebec and Atlantic, at IG Wealth Management
If you are aged 35 to 45, for example, there are at least 20 years left to save for retirement. “However, you must make sure to take your personal figures into account,” explains François Martel. We could be the same age and require a diametrically opposed plan depending on our situation. A frequent traveler will not have the same planning as a homebody. »
PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVES
Carl Thibeault, Senior Vice-President, Quebec and Atlantic, at IG Wealth Management
Carl Thibeault strongly recommends being accompanied by a financial planner for this crucial step. “The strength of the advisor is the ability to stay away from emotions,” he believes.
Reduce risk quietly
On the eve of retirement, experts suggest reducing the level of investment risk, without eliminating it. To help, François Martel, of BMO, recalls a general rule: our age should be roughly equivalent to the percentage of fixed income in our portfolio.
“Investments should not retire at the same time as us,” notes Carl Thibeault. It is true that we must plan for affordable amounts, but a large portion of the assets will be used at age 67, 73 or 85. These dollars may carry more risk, consistent with our investor profile. »
Revise
If we don’t have a frequent picture of the situation, it can become unsafe. This is why Sylvain De Champlain advises reviewing your plan once a year.
“You can thus rebalance your portfolio. For example, if asset classes have outperformed, it would be wise to lock in some of the profits or invest them in other classes that have performed less. »
Avoiding emotional decisions
The hardest part, according to experts, is not making emotional decisions when things are going badly. It’s better to review your budget, adjust your spending and find ways to achieve your goals than to act on a whim. “The impacts of bad choices can be significant,” recalls Carl Thibeault.
François Martel compares our reaction to market fluctuations to those of prices at the grocery store. “When tuna cane drops from $3 to $1.50, we often buy more to stock up. However, we do the opposite with actions, he deplores. When the market rises, we buy because we believe it is a good sign. And when it goes down, we abstain. »
Instead, you have to go back to basics: draw up a plan, review it regularly and stick to it. And above all, keep a cool head.