Financial Default: A thing you do with money because it’s easier to do nothing. Think of saving at the bank because it's there, investing with a bank advisor because they are there, adding mortgage insurance to your house, this list goes on.
Today, I want to look at one that has burned my clients in the past: Group RRSP default investments.
You've been at your new job for 3 months and they give you a slew of paperwork to fill out. In there is the enrollment form for your Group RSP. You fill in a few things and then you look at a menu of 100 investment options.
That's Overwhelming. So you see a line where it says something like "If you don't choose, we'll invest in the default". That's easy! You didn’t have to do anything.
Chances are, that default is a Money Market fund, a glorified savings account that will never keep pace with inflation. Some companies use this as a holding tank until you make a decision on what else to invest in. I recently met with a client who has been "saving" money at work for more than 20 years. I say “saving” because, after fees, they were losing money every year.
Most times, easy is easy for a reason. You think you are doing the right thing and setting yourself up for retirement, but because you were never given any guidance, the easy way turns out to suck.
Have a look at your Group RSP statement and make sure that you are actually invested in something. Better yet, send it to us and we can give you some advice on what might work best for you.
Kenneth Coombs CFP CHS RRC
Ken has worked in the financial services industry since 2005, is a Registered Retirement Consultant and a Certified Financial Planner. Ken has written financial planning columns and has been a guest in financial print, radio, and podcast programs.