The sooner, the better

The timing of your RRSP contribution can also have a significant impact on the accumulated value of your RRSP – due to the effect of compounding on your investment earnings in your RRSP.

The following example shows how much more your RRSP can earn when you make an annual contribution early in the year, or through monthly contributions, compared to waiting until the end of the year to make the same contribution.

For example:

Derek, Ira and Anne each contribute $1,200 annually to their RRSPs earning a 6% average annual compounded return.

			Derek contributes his $1,200 at the beginning of each year
			Ira contributes $100 at the beginning of each month throughout the year
			Anne contributes $1,200 each year on the very last day for RRSP contributions deductible in the tax year
			$69,788 total value   $67,958 total value   $65,837 total value $35,000 total investment over 25 years   $35,000 total investment over 25 years   $35,000 total investment over 25 years Derek   Ira   Anne

After 25 years, Derek's RRSP is worth the most.

The above example is for illustration only. While care is taken in the preparation of the calculations in the illustration and examples, no warranty is made to their complete accuracy.

You'll also benefit from dollar cost averaging

When you contribute on a regular basis – such as monthly or weekly – you are ahead of the game in more than one way. Regular contributions allow you to benefit from compounding interest. And, when you contribute the same amount each month to purchase mutual fund units at the prevailing mutual fund price, you also benefit from dollar cost averaging. When the price goes up, so does the value of your contributions. When the price eases back, your regular contribution buys a greater number of units, which lowers your average cost.

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