2 Massive RRSP Mistakes to Avoid Before Buying Stocks

Written by Adam Othman at The Motley Fool Canada

Canadians have long struggled with debt and haven’t had much to show for it in terms of saving for a rainy day. The pandemic arrived in 2019 to turn the world upside down and gave a huge wake-up call to Canadians about the need to have long-term financial goals and the discipline to meet them.

Since then, reality has prompted Canadians to take proactive steps to improve their financial situation. Savings in 2021 hit record levels: Central Alberta’s chief economist reported that savings in Canada reached about $230 billion. One popular way to make the most of your savings is to put your capital into tax-advantaged, registered investment accounts, such as the Registered Retirement Savings Plan (RRSP).

dividend investment It’s one of the best ways to take advantage of your RRSP’s contribution room. However, not many people manage to fully take advantage of the advantages that the RRSP offers, because they mismanage their accounts. If you plan to use your RRSP as an investment vehicle for your retirement goalsThere are some mistakes you should avoid making to get the most out of your account.

Today, I’ll discuss two massive RRSP mistakes you should avoid before purchasing stocks for your retirement portfolio to take full advantage of the account’s tax-advantaged status.

1. Not knowing the contribution deadlines

Ideally, you would use your RRSP’s contribution room to store investments instead of cash. You can deduct your RRSP contributions from your taxable income. However, it’s critical to understand that there is a March 1 contribution deadline to deduct RRSP contributions from your taxable income. Be sure to make RRSP contributions for a given tax year before the March 1 deadline.

2. Short-term investment

Another crucial mistake many investors make when it comes to RRSPs is investing for the short term. The tax-advantaged status of RRSPs is designed for long-term investments. When you contribute to RRSPs, be sure to invest money you won’t need anytime soon.

By making any withdrawal from your RRSP, you will permanently lose that contribution room. You also lose the impact of compound growth for your investments, because you cannot re-contribute an amount once you withdraw it from your RRSP.

Proper long-term RRSP holdings

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) stock could be an ideal asset to buy and hold in your RRSP for the long term to achieve your retirement goals. Scotiabank stock is one of the big six Canadian banks. It has a long streak of paying dividends to shareholders. It also has the potential to give you a significant increase in the coming years through capital appreciation.

Scotiabank has a growing international segment in the Pacific Alliance countries of Mexico, Peru, Chile and Colombia. These countries have a growing middle class population and their economies are expected to grow faster than the G7 countries in the coming years. Scotiabank’s presence in these companies as a preferred lender in the region could translate into substantial growth for the bank in the coming years.

At the time of writing, Scotiabank shares are trading at $82.68 per share and boasting a juicy dividend yield of 4.35%.

Silly takeaway

Remember that wealth growth from investments made in your RRSP can provide tax-free returns for as long as your investments remain in your account. Any early withdrawal from your RRSP will be taxable.

You should be careful to remember the RRSP contribution deadlines to effectively claim tax deductions during tax season and find Long-term buy and hold assets that could provide you with reliable returns. Scotiabank stock could be an excellent holding for your RRSP for this purpose.

The post 2 Massive RRSP Mistakes to Avoid Before Buying Stocks appeared first on The Motley Fool Canada.

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Adam Othman, a contributor to The Motley Fool, has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

2021