If you are working for a medium to large size company there is a good chance that you are contributing to a company group RRSP or Deferred Profit-Sharing Program (DPSP). The most popular plan providers in group retirement benefits include Manulife, Desjardins, Sun Life and Great West-Life, now Canada Life.

Typically, your employer will match a portion of what you invest into the plan making it easier to set aside funds for retirement. Once you start contributing it’s easy to save money since the deductions come right off your paycheck. What you do with the difference is totally up to you.

Another feature worth pointing out are the low fees. I have seen #RRSP and #DPSP plans with annual investments fees as low as 0.55% for a balanced fund compared to a much heavier price tag of 2.35% for the standard balanced mutual fund in Canada. Keep in mind that such a price tag should include the cost of advice provided by a financial #professional.

If these plans make it easy to save money, includes a matching program and provides low fees, what could possibly go wrong with retirement accounts that can represent a significant portion of your life savings?

Howard Marks, author of “The Most Important Thing”, brilliantly describes risk in following manner:

“I tell my father’s story of the gambler who lost regularly. One day he hears about a race with only one horse in it, so he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away.”

In my opinion the 2 major #disadvantages with most if not all retirement group benefit plans include the process in which investments are selected and the limited investment options.

Although you have access to a retirement savings program that provides matching on your deposits with the benefits of low-cost investments, you still need to understand what you are doing and build yourself a portfolio that matches your long-term goals. For some members that may be challenging and for others not so much, in fact some might even embrace the opportunity to have total control over their investment selection. Although members have different comfort levels, they do share one thing in common and that is limitation of investment options.

The combination of a weak investment selection process and limited investment options can significantly suppress the opportunity for capital growth which may not be visible for many years. Since these retirement plans can represent a significant portion of your life savings it is important to be aware of these restrictions.

What is this week’s takeaway?

The combination of a weak investment selection process and limited investment options can significantly suppress the opportunity for capital growth which may not be visible for many years. Since these retirement plans can represent a significant portion of your life savings it is important to be aware of these restrictions.

The optimal approach towards wealth creation should in fact involve the integration of having both group and individual #savings plans. After all, individual plans do not have the same limitations and can compliment group retirement plans nicely.

What is important about saving is not how much “free money” one can receive within their group retirement plan but rather having a #personalized financial plan that can forecast the direction of such decisions.

Have a great weekend!

Talk soon,

Michael