February is RRSP month. This is something that I was aware of in the back of my mind when I was younger, but now that I’m older, like April it’s a month that I have to G finances in order and TD. The handy tip while I was in school, but also receiving a handy income from coop, was to save up my RRSP deduction limit until I had a full-time job and need it to lower my tax bracket. Well my deduction limit for 2007 (first year as a full-timer) is over $20k but fortunately (or unfortunately) I don’t need to use it to lower my tax bracket.

Nevertheless, it’s still good practice to invest (and invest early) for retirement, so I will be contributing this month. My current thought is to invest 10% of my income in 2007. Why 10%? well next year, my deduction limit will increase by 18% of my income in 2007, but I’ve already contributed 4% (and IBM matches 4%) to my pension; so if I invest up to 10%, then the deduction amount I use up will be renewed by next year. Plus, I don’t have that much cash on hand anyways.

With that decided, now I have to figure out what to invest in. Thanks to high school math class, I have this idea in my head that mutual funds have a rate of return of 15% per year on average. But that mindset in the current market would be a disaster. While I’m confident that if I were to invest in mutual funds now, that they would eventually rise above water; I will also have to cash in my RRSPs in the short term as part of the RRSP Home Buyers Plan. I need something safe that will at the very least retain value; looking at my bank’s mutual funds offering, I don’t think that’s possible. So I’m now of the opinion that I will invest in a (redeemable) RRSP GIC instead. The rate of return is fairly low (3-4%) but at least it’s not negative.