Timing is everything

When it comes to retirement savings, when you invest can be just as important as what you invest in. In fact, making consistent and even contributions throughout the year is a simple way to maximize the benefits of investing in your Registered Retirement Savings Plan (RRSP).

"By contributing to your RRSP on a regular basis, no matter how the market is performing, you can build your retirement portfolio more effectively and stay focused on your investment objectives," says Mandy Dhinsa, an RBC Royal Bank branch manager in Brampton.

Making regular contributions is not only more convenient, it also ensures that you are more disciplined in making them. It's also easier to budget for smaller contributions than trying to come up with a single lumpsum amount once a year. Several tools, such as RBC Royal Bank's RSPMatic, allow for automatic contributions from your chequing or savings account at set periods (for example every week, two weeks, or month) directly into your RRSP.

"When you make automatic RRSP contributions, you don't have to worry about writing a cheque or transferring the money yourself," says Dhinsa. "So you'll never forget to make a contribution and you'll avoid being tempted to spend that money on something else."

RBC Royal Bank branch manager in Mississauga Shekher Puri adds: "It's called ‘paying yourself first.' With all the bills we pay each month, it can be hard to put money away if it's not done automatically."

With these more regular contributions, your investments start to grow on a tax-deferred basis as soon as they are in the plan. And the power of compounding can help those incremental savings grow significantly over time. For example, $100 contributed to your RRSP every month will amount to $100,953 in the span of 30 years, assuming an annual rate of return of six per cent.

Regular contributions also let you take advantage of "dollar-cost averaging." Each time you make a contribution to an investment, a number of units are purchased.

Say you contribute $100 a month: in a month when the price per unit is $10, you buy 10 units. Now let's say the price per unit the following month is $5 — a drop of 50 per cent. Some investors would panic, but think of it this way: your same $100 now buys 20 units, putting you in a great position when the price goes back up. You end up buying more units at lower prices and less at higher prices.

"It's hard to time markets," says Puri. "Ideally, you want to buy low and sell high, but that's hard to time. By investing in regular intervals, you take the guesswork out of the market. In some cases, you'll buy high, but overall the average cost for unit is lower this way."