Mutual Funds as an RRSP Investment
Mutual funds are an excellent investment within a self-directed RRSP. The following are some of the key benefits of mutual funds, as an RRSP investment:
Investors whose RRSP contributions are limited may achieve a more diversified investment portfolio through an investment in a mutual fund.
Within an RRSP, your mutual fund investment grows on a tax-deferred basis and benefits from the power of compounding, as can be seen by the example below.
Consider the case of these two investors. In both cases, all investment income is reinvested.
One investor contributed $5,000 annually to an RRSP, for 30 years, at an average annual compound rate of return of 8% and a 40% combined federal-provincial tax rate. This investor accumulated approximately $566,000 (before tax) and $340,000 (after tax); assumption for illustration purposes as tax shelter can continue with orderly withdrawals.
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