Q. I’m repaying my RRSP home buyer’s plan withdrawal. With the recent volatility in the market, I’d like to direct it toward a segregated fund as it’s supposed to be much safer. However the original withdrawal was made from an RRSP that had stocks and mutual funds. Is this allowed?
Bruce, Rideau Gardens
A. As you have the option to direct your repayment to any eligible RRSP investment you can
certainly invest in segregated funds, GICs, bonds etc.
However I wouldn’t immediately assume that a segregated fund is safer than a mutual fund or other managed portfolio.
As you probably know, segregated funds are offered by insurance companies and contain some kind of guarantee, usually that upon death or maturity the fund value will be at least 75% of the original deposit. There also may be some advantages for estate planning and creditor protection purposes. Do note that these features come at a cost, usually in the form of a significantly higher management fee.
Although segregated funds may provide a little more peace of mind than traditional mutual funds through their guarantee, they are not necessarily safer.To determine the risk level of the fund you have to look at several factors: the asset allocation, the amount and kinds of equities that are held within the portfolio, the manager duration, the approx. turnover of the portfolio etc.
Some insurance companies hire external managers to run their segregated funds so the holdings and risk levels mirror that of the underlying fund. Others have their in house investment teams manage the portfolios.
As most segregated funds are distributed through advisors, I’d recommend that you ensure that your advisor carefully understands your goals, objectives and risk levels before recommending an investment portfolio for you.
This article provides general information and does not constitute financial or other professional advice. Seek independent advice before implementing any of the strategies discussed.
Imran Syed, BA CFP CFSB TEP is an independent, Fee Only Certified Financial Planner and can be reached at www.feebasedadvisor.ca. Please send any home related, financial planning questions to him by email at homes@ottawacitizen.com
