Getting Started: A Step by Step Guide to Setting up Your Gold RRSP
If you are convinced on the merits of including gold in your investment portfolio to weather market volatility and reduce risk, you might be wondering where to start. There are significant tax benefits to keeping your long term savings in a registered account like an RRSP but you will have to work within the government guidelines that define gold bullion as a “financial instrument.” There are also numerous ways to expose your portfolio to gold without keeping it in a vault. The following steps will help you take control of your savings and incorporate gold into your investment strategy.
1. Decide how you will invest in gold
You could purchase bullion, certificates of ownership, equity in gold companies, gold-focused mutual funds or gold-related ETFs (of which there are many including index funds, gold-backed funds, leveraged gold funds). Learn about gold, the history of gold and the pros and cons of the various financial instruments that are linked to gold.
Think about your financial objectives and life goals. RRSPs are not only for retirement savings, they can help you purchase a home and continue your education (Home Buyers Plan and Lifelong Learning Plan). What savings do you already have and how is it invested? Do you have the option of an employee sponsored RRSP? Do you have children? Are you approaching retirement or just starting out? These are things a financial advisor will talk to you about. If you are managing your own RRSP in a self directed account, sitting down with a financial advisor is probably worth your time. Understanding your risk tolerance and defining your goals are essential to making the best investment decisions. See ‘How Much Gold do You Need to Own’ and ‘Why Add Gold to Your RRSP’ to start thinking about what is right for you.
2. Set up an Account
Once you have an idea of the type of exposure to gold that you want, you can decide where to open an account. Although you can have multiple RRSP accounts, consolidating your investments will allow you to track performance, make adjustments, and avoid paying fees on multiple accounts.
If you are interested in buying stock in gold companies, gold-linked ETFs, index funds or mutual funds, you can compare a large number of discount brokerages that service self directed, registered accounts. Compare commissions on the assets you trade most. Many discount brokers offer free ETF or mutual fund trades. Many will drop annual fees for accounts over $25,000 or for active traders. If you are looking to buy U.S. ETFs or foreign stocks, consider the various policies for exchanging money. More brokerages are allowing investors to hold balances in U.S. and Canadian cash in the same account. This feature is also important if you are buying certificates or bullion as they trade in U.S. dollars.
Gold certificates are another option for those that want a position in gold. They generally come with lower fees than actual bullion investments but may be redeemable for gold (although most experts think it would be very hard for investors to redeem their gold in case of an economic meltdown). A handful of brokerages allow you to hold gold certificates in you RRSP account (Scotia iTrade, TD Direct, RBC Direct, CIBC Investor’s Edge, BMO Investorline). You can shop around and compare commissions for buying and selling certificates and safekeeping fees. It also may be important to you whether or not the certificate can be redeemed for gold – this varies between financial institutions.
Now for those that want true protection against uncertainty, recession and systemic collapse, there is no substitution for physical gold bullion. However, if you want to use your tax-free RRSP contribution to buy physical gold, you have to follow some regulations when it comes to the purity of the coins/bars you plan to purchase. Also, unlike our neighbours to the south who have many options when it comes to investing in physical bullion through a retirement account, here in Canada the options are limited. Questrade seems to be the only go-to brokerage for including bullion in your RRSP. Laurentian Bank Discount Brokerage also advertises this service, in a partnership with Canadian bullion dealer, Cache Metals and Brinks storage facilities. However, when you invest with LBDB, your gold is pooled and NOT redeemable for the real thing. Questrade operates as both a bullion dealer and an RRSP custodian. They also have a large group of affiliated bullion dealers across Canada if you choose not to buy bullion directly from them.
3. Fund your account and begin trading
If you are looking to buy gold-related ETFs, mutual funds or equity in gold companies, you simply need to have a cash balance in your self-directed RRSP account. You can then purchase these assets online and pay very competitive commissions and fees. If you are after certificates of ownership in gold, your self directed RRSP account must be at one of the five brokerage firms listed above. Generally, certificates are traded by phone rather than through an online platform.
If you want to hold physical gold in an RRSP account, the first thing to do is to open an account at Questrade. This can be done online quickly and easily. Then you will need to fund the account, which may involve transferring assets from another brokerage, setting up automatic deposits, employer contributions or a personal cash transfer into your new account. Because bullion generally trades in U.S. funds, you will want to establish a U.S. cash balance. Fortunately, Questrade allows you to hold both U.S. and Canadian cash balances.
When your account is funded, it is time to buy your bullion. If you know what you want, you can simply buy through Questrade. You can call their trading desk to buy or sell your gold or silver. They offer competitive commissions and premiums as well as the choice of pooled or segregated storage, all of which is approved and meets the standards to be included in a registered account.
You might also choose to shop around at Questrade’s affiliate dealers and talk to some gold and silver experts. These bullion dealers are affiliated with Questrade and you can buy approved bullion through them with various options for storage and selections of coins and bars. These dealers will provide you with an authorization form, which will ask for your 8-digit Questrade account number. If you wish to make bullion trades, you call the affiliate dealer and funds come in and out of your RRSP account. They will automatically deduct storage and other related fees from your Questrade RRSP account or you can set up another margin account at Questrade for this purpose.