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How to handle the RRSP deadline while stocks tumble over coronavirus

Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., February 28, 2020. REUTERS/Brendan McDermid

The RRSP contribution deadline is Monday, at a time when markets are in a tailspin — leaving nervous Canadians wondering what they should do this time.

There are certainly reasons to be cautious. Global stock markets continue to tumble over COVID-19 fears. The TSX was halted Thursday amid a flurry of order volume. And it’s still too early to survey the damage from railroad blockades.

But you can still contribute to an RRSP while avoiding the stock market altogether.

“The stock markets have been getting a lot of attention lately, but they only represent one slice of the investment pie,” Paul Shelestosky, senior wealth advisor at Meridian, told Yahoo Finance Canada.

“Don’t let the volatility stop you from contributing to your RRSP.”

Cash is always an option. Most financial institutions offer a high-interest savings account (HISA). 

“This would allow you to get your RRSP receipt for the 2019 tax year and give you the flexibility to hold the contribution effectively ‘in cash’ until you’re ready to invest,” said Shelestosky.

The interest rate varies, so shop around. But the rate can fluctuate so a return isn’t guaranteed. If that’s important a GIC can be a better fit.

“A GIC will pay the investor a fixed interest rate with a fixed investment term.”

“Some of the challenges around GICs is that we are in a very low rate environment, and they are usually locked in until their maturity date.”

Shelestosky says GICs will at least keep up with inflation, but cautions avoiding stocks all together means missing out on years of compounding returns that grow tax-deferred. 

It all depends

What you do with your RRSP contribution depends on your personal situation, including time before retirement, other available sources of income like a TFSA, pension, and your spouse’s situation.

“Taking on too much risk might mean your money may not be there when you need it,” Kelley Keehn, personal finance educator and FP Canada Consumer Advocate, told Yahoo Finance Canada.

“Taking on too little risk might mean you don’t earn enough from your investments to retire comfortably.”

If you decide to take a wait-and-see approach and leave your contribution parked in a cash account, Keehn suggests setting a date on a calendar to review your investment mix.

She says it’s important to sit down with an advisor and crunch the numbers to make the appropriate decisions.

High-income earners stand to benefit the most by contributing. Keehn says if that’s you and you don’t have any money set aside, an RRSP loan might be a good option. 

She says an RRSP loan can also be useful for people with debt because the refund can be used to pay off bills. But an RRSP isn’t right for everyone.

“If you have a really low income, are unsure if you might need the money in your working years, don’t have an emergency savings account, then RRSPs may not be right for you,” said Keehn.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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