Best RRSP Investments: Win the Marathon of Investing

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Dividend Earner

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Finding the best RRSP investment for your needs doesn’t have to be a challenge. A RRSP, or Registered Retirement Savings Plan, is an account designed by the government of Canada to help you save and invest for retirement.

It is unique in that it provides two tax-efficient ways to save and invest.

Everything you earn in the account grows tax-free. The growth from transaction to transaction will not be taxed until withdrawal. That means you have more money at work

Your contributions are also tax-deductible which means you can put the money back in the RRSP to have extra money at work to build wealth.

Also, take a moment to see if your employer has a matching contribution plan as it can significantly accelerate the growth.

Also, note that there are contribution limits and other rules when it comes to withdrawal if you are not familiar with the details as well as deposit such as RRSP over-contribution. The Canada Revenue Agency has all the rules and details.

Supercharge your RRSP Investments

An RRSP account can hold a variety of investment products. Depending on your timeline, and risk appetite, there are various options. Seniors don’t invest the same way as young adults for example.

A 60-year-old senior would be looking at a safe withdrawal or income strategy to complement the CCP payments and OAS payments. Whereas, a younger millennial with a 30+ years investment horizon can opt for a more aggressive strategy.

While there are popular approaches touted in various investing literature for a RRSP, with the low interest rates environment we have today, you have to be in equities to have your money work.

Savings account don’t pay and GIC don’t pay either. In fact, you are behind inflation so it doesn’t help you at all. Bonds have also dropped significantly and many have seen capital decline.

The question you want to answer is which equities should you settle for.

Index Investing for the Hands Off Investors

If you want to keep it simple and not stress over individual stock fluctuation, index investing is the way to go.

Index ETFs are the best option and there are many options from various companies. The two major companies are Vanguard and iShare from BlackRock.

What you get is a market average return. For Canadians, please buy US S&P500 index or total stock market index. Our Canadian economy is small and not very diversified. With the Vangauard VFV ETF you can easily have an annual rate of return of 12% over many years.

VFV vs TSX vs SP500 2021

Some discount brokers offer free ETF transactions too. With Questrade for example, you get to buy ETFs for free and you have a sell transaction fee only.

Individual Stock Investing

Even retirees have stocks these days. For capital preservation and decent income, retirees will tend to have bank stocks, utility stocks and telecom stocks. These 3 industries are core to the economy.

It’s important you capture the difference between investing when you can add more money during the accumulation years, and investing when you live from the income of your portfolio.

While you have one portfolio, I believe they need to be constructed differently.

Income Investments In Retirement

Being retired usually means there is no income coming in to add to the pile of money.

Safety and predictibility becomes more important for investors. Unfortunately, the high-interest bank account doesn’t pay and neither do bonds really.

Since the retirees will already have some of the Canadian banks, telecoms, or utilities, they tend to flock to REITs next in an attempt to have stability with real estate and income from rent.

I am not a big fan of REITs as the safety of the asset is not reflected in the stock price. Instead, I prefer the covered call strategy on bank stocks for example. Doing covered calls is not easy, as such I focus on the best covered call ETFs.

FHI – CI Health Care Giant Cover Call ETF

The ETF holds the top healthcare stocks from the US which have usually less volatility than other sectors and many pay a decent yield to add to the income from the options premium.

The ETF holds the top 20 healthcare stocks that you will all recognize and are an integral part of the North American healthcare system. They are primarily the mega cap stocks from a market capitalization.

ZWB – BMO Covered Call Canadian Banks ETF

This is your safe play if you are very risk averse but your income drops by 30% …

It’s pretty simple, the ETF holds the major banks and writes covered calls. This is what many DIY investors would do on their own.

Dividend Stocks For The Long Term

For wealth building during the accumulation years, you want stocks with growth potential and that usually mean a low dividend yield or none at all if you think of Shopify or Lightspeed POS.

SHOP and LSPD are what I call millionaire makers. You invest a small amount and let it ride. Valuation is usually high due to growth and you can’t compare numbers with a bank for example.

Here are 3 Canadian RRSP investments you can invest in for growth.

1. Canadian National Railway

Canadian National Railway is a leading transportation and logistics company in North America. The company owns the only transcontinental railway line in North America and provides intermodal, trucking, freight forwarding, warehousing and distribution services.

As North America’s leading supply chain player, Canadian National Railway carries more than 300 million tons of cargo annually. It is a fully integrated rail and transportation services company and is the top mover of aluminum, iron ore and base metal ore in North America.

Canadian National handles over 50% of all Canadian chemicals production and services the three major petrochemical centers in North America. Its product portfolio is well diversified with intermodal accounting for 25% of revenues, followed by petroleum & chemicals, and grains & fertilizers each at 17%. Forest products, metal, minerals, automotives, etc. constitute the remainder.

Key Investment Data

  • Ticker: TSE:CNR
  • Sector: Industrials
  • Industry: Railroads
  • Market Cap: 108.39B
  • Market Cap Group: Large Cap
  • P/E: 21.61
  • Dividend Yield: 1.97%

2. Intact Financial

Intact Financial Corporation is the largest provider of property and casualty insurance in Canada and a leading provider of specialty insurance in North America. The company’s popularity can be gauged from the fact that about one in every five Canadians is a customer of Intact Financial products and services.

The company enjoys a 17% share in the P&C insurance market in Canada. In terms of business segments, personal and auto accounts for nearly 40% of DPW (direct premium written), followed by personal property (20%), commercial lines Canada (25%) and commercial lines USA (15%).

About 85% of the company’s revenue is derived from Canada and the remaining 15% is from the U.S. The company operates through Intact insurance, BrokerLink, OneBeacon and Belairdirect banners.

Key Investment Data

  • Ticker: TSE:IFC
  • Sector: Financial Services
  • Industry: Insurance - Property & Casualty
  • Market Cap: 34.19B
  • Market Cap Group: Large Cap
  • P/E: 12.95
  • Dividend Yield: 2.05%

3. Alimentation Couche-Tard

Alimentation Couche-Tard is one of the largest Canadian companies and the owner of several Canadian convenience stores. The company also supplies road transportation fuel to approximately 1,300 locations in the U.S. and offers stationary energy and aviation fuel.

As a leading independent convenience store operator, Couche-Tard owns a network of nearly 10,000 convenience stores in 48 states in the U.S., ten provinces in Canada, as well as other countries.

It operates more than 16,000 stores worldwide. By geography, the US is its largest market accounting for 67% of 2018 revenues, followed by Europe (20%) and Canada (13%). The company operates through Couche-Tard and Mac’s brands in Canada and Circle K globally.

Key Investment Data

  • Ticker: TSE:ATD
  • Sector: Consumer Defensive
  • Industry: Grocery Stores
  • Market Cap: 60.16B
  • Market Cap Group: Large Cap
  • P/E: 16.18
  • Dividend Yield: 0.93%