How to protect your Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Locked-In Retirement Accounts (LIRAs), and Life Income Funds (LIFs) in the event of another referendum?
What is the Problem?
The problem lies in the fact that only 30% of your registered funds are permitted to be invested in what is termed “Foreign Investments”. (There are legitimate ways around this. Click here to find out how). The problem lies in the fact that in the event of a “YES” vote in a referendum on Quebec sovereignty, the value of the Canadian dollar will fall in relation to other currencies.
There are some people who would argue this. That’s okay. When they do, I remind them that the provincial government of Quebec was so convinced of this that they converted billions of dollars that were invested in the Caisse de Depot to cash so as to be able to prop up the dollar the day after a “YES” victory. This has been well documented.
It doesn’t matter what your politics are. Forget politics! Concentrate on protecting your hard-earned assets!
So how do we protect ourselves? Fortunately, some of the money we as a nation owe is to foreign countries and denominated in their currencies. Other nations are pleased to lend to us, but they want to be paid in their own currencies, i.e.: the Americans in US dollars, the British in pound sterling, the Germans in deutschmarks etc. As these debts are made up of Canadian-issued bonds, they are 100% eligible for RRSPs and other registered products.
There are a few mutual funds made up entirely of these foreign-currency denominated bonds. In the event of a referendum, we simply move half of the registered holdings in to one or two of these funds, and leave the other half as is. In the event of a “YES” vote, the Canadian denominated registered funds drop in value, but are offset by an increase in the foreign denominated funds. The net effect should be zero.
Unfortunately, if your RRSP is made up of Guaranteed Investment Certificates (GICs), which do not come due until after the next referendum, there’s not much that can be done for you. It is not likely that Lucien Bouchard will consult you beforehand. But now you know that there is a risk associated with GICs, and you are able to do something about it today. You have control over this!
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