If 2011 were any indication of the volatility in the world of Investing, then read further to Learn about how you can Protect your RRSP in 2012.

Step 1. Look at using Segregated Funds instead of Mutual Funds.

Segregated Funds are pools of assets similar to Mutual Funds, but with many significant benefits. The first benefit of a Segregated Fund, are the Guarantees they carry. The first powerful guarantee is the Death Benefit Guarantee. This Guarantee will return all of the deposited assets to the beneficiary, even if the account value has dropped. This is one of the best ways to protect your RRSP against the timing of death and volatile market values. If a client had deposited $100,000 into a Segregated Fund, and passed away when the market value had been depressed to say $70,000, the beneficiary would receive the entire $100,000 back. If this same deposit was in a Mutual Fund, the beneficiary would only receive $70,000 back. The other powerful Guarantee is the Maturity Guarantee. You can have a Maturity Guarantee of either 75% or 100% of your initial deposit. This means that after 10 years, if the market is in decline, you can still withdraw your initial deposit, even if the market is down.

Step 2. Consider a GMWB Guarantee on your RRSP.

A GMWB or Guaranteed Minimum Withdrawal Benefit helps our clients think about Income, and not just Savings. A GMWB acts like a personal pension, whereas you get a minimum rate of return inside the Investment Account, which is credited towards your Income. This allows you to receive a 5% Guaranteed Income Bonus every year you are invested, or the market value, whichever is higher. This way you can actively participate in the Stock Market, but get a base Guarantee of 5% if the Market does not perform well, or even loses money. This type of powerful guarantee has been incredibly well received by our clients in 2011. Because even though the market fell -12% in 2011, our clients Income Base was increased by 5%, try doing that with a Mutual Fund or GIC. Also by using the GMWB strategy, when you turn your Savings into Income at retirement, because it is a personal pension, you are guaranteed to receive Income for Life, no matter how long you live.

Step 3. Reset the Value of your Segregated Fund Accounts.

Another one of the many benefits of a Segregated Fund, is its ability to Reset your Initial Deposit. This means that not only is your initial deposit guaranteed, but even the interest it accumulates can be guaranteed through resets. In the first step we talked about the account declining from $100,000 to $70,000, but if the markets are in a rise, and the value of the account had increased to say $125,000, then your new guaranteed amount would be $125,000, and it can never go down, no matter what happens in the market. So if you have Segregated Funds, and your account value is higher than your original deposit, make sure to reset your guaranteed amount. This is a great way to protect your RRSP.

Step 4. Check your Beneficiary Designation.

Did you know that many Mutual Funds do not have a Beneficiary Designation? You also cannot make a beneficiary designation on a GIC or Term Deposits. If you were to pass away without having a proper beneficiary designation, you could be putting your spouse through a lot more work and effort than they need to be. It is a very simple process, and it stays outside of the Will, so that the assets can flow directly and efficiently to your Beneficiary (Generally your Spouse). By using a beneficiary designation, and Segregated Funds, you can bypass Probate on the account by using a Beneficiary Designation. So its not only a smart thing to do, but will also save your estate thousands of dollars in Probate and associated Fees.

Step 5. Be Conservative in 2012.

Many times we meet with a client who does not understand their RRSP Investment Account, or how the money is actually invested. This is the number one mistake people make, and this is why portfolios are down across the board. You must understand how your money is invested, and how much of it lives in the volatility of the Stock Market. A good Conservative mix should be built similar to this, Bonds/Dividends/Equities. This way you have a good base of solid income through your Bonds, a good Dividend Fund with a strong track record will be the next riskiest Investment, and finally an Equity component will help you keep up with inflation. Even if you are in a bad Market, you can draw your income off of the Bond and Dividend component of your portfolio, and let the Equities recover. This way you never really "lose" money in the markets other than on paper, but it does not have to affect your Income or your Lifestyle.

By following the 5 Steps above, you should be able to weather the storm, and face any challenges that the Stock Markets throw at you. If you need help in implementing any of these strategies, please give our office a call. It can make the difference between worrying about your Account, or being able to sleep at night, no matter what bad news is shown on the Evening News...