Retirement investments can easily be made to boost your long-term returns with a focus on registered retirement plans and a long-term approach

Retirement is the time in the life of most Canadians where they stop working and aim to live off the investments they made during their working careers.

Successful retirement investments can easily be made with the understanding that planning ahead will help you get more of what you want from retirement. That’s one of the most important things to do while you’re still working.

All in all, our best retirement planning advice is to invest early and often—and don’t forget to use our three-part Successful Investor philosophy.

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Retirement investments can easily be made with RRSPs and RRIFs

RRSPs (Registered Retirement Savings Plans) are a great way for successful investors to both cut their tax bills and maximize the returns of their retirement investing.

RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year up to a set maximum. March 1 is typically the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.)

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

If you want to pay less tax on dividends, interest and capital gains while you’re still working, investing in an RRSP is the way to go.

Converting your RRSP to a RRIF is clearly one of the best of three alternatives at age 71. That’s because RRIFs offer more flexibility and tax savings than annuities, or a lump-sum withdrawal (which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income).

Like an RRSP, a RRIF can hold a range of investments. You don’t need to sell your RRSP holdings when you convert—you just transfer them to your RRIF.

Retirement investments can easily be made more profitable­­ with the help of diversification

If you diversify as we advise, you improve your chances of making money over long periods, no matter what happens in the market.

For example, manufacturing stocks may suffer if raw-material prices rise, but in that case your Resources stocks will gain. Rising wages can put pressure on manufacturers, but your Consumer stocks should do better as workers spend more.

If borrowers can’t pay back their loans, your Finance stocks will suffer. But high default rates usually lead to lower interest rates, which pushes up the value of your Utilities stocks.

As part of their portfolio diversification strategy, most investors should have investments in most, if not all, of these five sectors. The proper proportions for you depend on your temperament and circumstances.

For example, conservative or income-seeking investors may want to emphasize utilities and Canadian banks in their portfolio diversification. That’s because of the high and generally secure dividends of these stocks.

More-aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks.

However, note that if you have Resource holdings, you should spread them out among oil and gas, metals and other Resources stocks for added diversification and exposure to a number of areas.

Mistakes in retirement investments can easily be made by investing in the wrong things—including options

As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments instead of holding stocks or stock ETFs.

To some extent, this is an understandable retirement investing strategy, since bonds can provide steady income and a guarantee to repay their principal at maturity.

Unfortunately, using bonds for retirement may not be the best strategy for successful investors. Bond prices will likely fall over the next few years because historically low interest rates are likely to rise. Bond prices and interest rates are inversely linked: when interest rates go up, bond prices go down; and when interest rates go down, bond prices go up.

We continue to recommend that you invest only a small part of your successful investor portfolio—if any—in bonds and fixed-income investments.

Retirement investments can easily be made better with the practice of dollar-cost averaging

Dollar-cost averaging brings automatic profits—and it’s also one of the best retirement investment plans available.

The best retirement plan you can have is to start saving as early in your working career as possible. You then invest a steady or rising amount of that money in the stock market every year. When you follow this plan, you automatically profit from dollar-cost averaging. You will automatically buy more shares when prices are low, and fewer shares when prices are high.

In retirement, you reverse the process. You live off your dividends and sell stocks only when you need more money. When you do that, you sell your lower-quality holdings first. That way, your sales have the added advantage of upgrading the quality of your portfolio.

Of course, you can improve your returns and cut risk if you structure your retirement investing around our three-part approach at TSI Network.

Use our three-part Successful Investor approach to lead you to sound retirement investments you can easily make

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

When did your retirement investing begin and has your strategy changed over the years?