RRSP Myth #1: RRSPs are investments

By Gail Vaz-Oxlade on February 4, 2011
Estimated reading time: 2 minutes

Every year when The Season rolls around we are inundated with articles and advertising about why you should have RRSPs and how best to use them. And yet myths abound.

For the next few days I’m going to look at some of the most common myths. Perhaps the biggest myth of all is that an RRSP is an investment. I hear this all the time. I ask, “So what did you invest in this year?” They say, “An RRSP.” I smile, “It’s great that you put your money into an RRSP, but what investment did you choose?” They, with a quizzical look on their faces, “What do you mean, I bought an RRSP. That’s what I invested in.” While a lot of people are under the impression that they can invest in an RRSP, they can’t. It’s not an investment at all. It’s a plan registration, that’s all. By putting the RRSP plan number on the paperwork, that signals the Tax Man to treat the money in a special way. (If I’m getting a little too basic for you, skip on to the next myth. Believe me, there are still a ton of people who don’t get this, so I’m going to throw an imaginary visual aid at this.) Imagine that you have a ball, a box and an umbrella. The ball is your money. The box is the investment you’re putting your money in. It could be a savings account. It could be a GIC. It could be a mutual fund, or individual stock or bond. Okay, you’ve put the ball in the box. Now slide the box under the umbrella. There ya go, you’ve just put the money into an RRSP. The problem for most people is that they often contribute to an RRSP before they decide how they’ll invest their money. So they put the ball under the umbrella first. Then later, they choose the box that best fits their ball. What’s important to remember is that until you choose a box, no money has been invested. While the money is under the umbrella, it’s registered, but until you put that ball in a box, it’s just sitting there earning not a red cent in return. You’ve saved it. But now you have to put those savings to work.