It's RRSP season, so let's take this opportunity to look at your investments; what factor has the most impact on your investments? There are a lot of factors that impact your returns such as fees, inflation, taxes and of course there's the overall rate of return... but there is one factor that arguably outweighs them all. Consider the following; which one of these two scenarios will have the greatest return?
1. Saving 3,500.00 per year for 26 years at 10% annual return
2. Saving 7,000.00 per year for 26 years at 5% annual return
Answer: They're not much difference at all, which means that the AMOUNT INVESTED is the most important factor. Even if your rate of return was 200%, if you're not contributing much it doesn't matter. Let's be clear, all those other factors are very important, but their significance comes after the contribution amount. We can't hope for unrealistically high returns to cover the contribution gap; considering only 1/4 of Canadians regularly contribute to a registered retirement plan and of those the average contribution is less than $3,000.00, there is a significant need to boost our savings.
It's never too early, or too late to start saving. If you're starting early, you don't have to put as much of your disposable income aside to get a healthy balance at retirement. If you're starting later don't be discouraged, every dollar counts.