The earlier you invest in your RRSP, the better
Start early to leverage the power of compounding
The sooner you make it a priority to invest for your retirement goals, the better.
When time is on your side, it's a huge ally. The earlier you start, the more you benefit from the power of compounding. Compounding occurs when the returns that your investments earn begin to generate a return.
In a registered retirement savings plan (RRSP), compounding is unhindered. You can reinvest your gains, including your dividend and interest income, without paying any tax, as long as the funds remain within the RRSP account.
The chart below shows the incredible impact that compounding has on your RRSP savings, and why it's better to start investing as early as you can.
Starting at different ages, monthly investments required to reach $500,000 by age 65
| Start at age 25 | Start at age 35 | Start at age 45 | |
|---|---|---|---|
| Monthly investments | $288 | $548 | $1,150 |
| Value at age 65 | $501,419 | $500,659 | $500,971 |
| Portion from compound growth | $363,179 | $303,379 | $224,971 |
Source: Credential Qtrade Securities Inc. Scenarios assume an average 5.5% annual rate of return.
Invest regularly
To leverage the power of compounding, it's a good idea to hardwire the habit of saving and investing. Set up a regular contribution plan to move a set amount of money automatically every month from your banking account to your self-directed RRSP, and invest that money to get it working on your behalf. You'll quickly adjust your budget and your lifestyle around that monthly commitment, and you'll avoid the stress of coming up with a single lump-sum contribution at the RRSP deadline.
DRIPs make it easy to re-invest dividends automatically
Keep your money invested, re-invested and compounding, by setting up a dividend reinvestment plan ("DRIP") for dividend-paying stocks that you own. With a DRIP, stock dividend payments are automatically used to buy more shares in the company. No commissions are charged for DRIP share purchases.
Qtrade Direct Investing offers both Canadian and U.S. DRIPs free of charge. Simply log in to your Qtrade account and go to Accounts > Service Centre > Dividend Reinvestment. For each of your accounts, you’ll see a list of DRIP-eligible securities. You can select “Active” next to the security you want to enrol in the DRIP program. Read and agree to the terms and save your changes.
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Aviso Wealth Inc. ('Aviso') is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited. The following entities are subsidiaries of Aviso: Aviso Financial Inc. (including divisions Aviso Wealth, Qtrade Direct Investing, Qtrade Guided Portfolios, Aviso Correspondent Partners), and Northwest & Ethical Investments L.P.
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. Information, figures, and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.