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Why does it make sense to keep lower quality, higher-risk investments out of your RRSP?

Riskier investments - whether in an RRSP or not - are more likely to produce losses than conservative investments which carry lower risk.

You pay an especially heavy price if you suffer losses in your RRSP investments. Let's look at these costs. By holding high-risk investments inside your RRSP, you increase the potential for losing money that you are counting on to finance your retirement. So it makes sense to hold quality investments in your RRSP and possibly a small amount of higher risk investments that have good growth opportunities. Quality investments include a mixture of fixed-income assets such as bonds or GICs and conservative equities like blue chip stocks.

The long-term cost of losing money on an RRSP investment can be significant. You lose not only the actual dollar amount, but also the tax-free growth that money could have earned you over the years. This tax-free growth is a key benefit of an RRSP.


If you invest $10,000 in your RRSP and earn an annual return of 8%, it will have grown to $68,485 after 25 years. But if you lose half your original investment at the start, you would have only $34,242 after 25 years because you would have $5,000 working for you instead of $10,000. Your $5,000 loss actually ends up costing your RRSP more than $34,000.

A second problem with holding high-risk investments in your RRSP is the fact that if you do have capital losses, you don't have an opportunity to use those losses to reduce or offset taxes on capital gains you may have earned on other investments. If you do have some losses, Canada Customs and Revenue Agency (CCRA) will share part of the pain with you, but only if those winners and losers are held outside your RRSP.