"The past three years have been the most challenging on global markets in 50 years. What makes this more unsettling is that these conditions follow a decade of unprecedented market growth. So, for many investors, these markets may be a new experience," said Peter W. Anderson, President, CI Mutual Funds Inc. in a recent letter.

Mr. Anderson continued by acknowledging that "remaining focused on the long term is tough". However insightful his words, we are faced with the dilemma of what investment our current retirement savings contributions should be invested in?

If you don't have a plan or have become concerned about future market conditions, then the best place for this year's RRSP contribution is into guaranteed investments such as term deposits or GICs or money market funds (remembering mutual funds have fees that could reduce your return) until you’re comfortable with a long term decision.

Beyond the present, investors are still aiming for a comfortable and enjoyable retirement, and whilst recognizing that we all have unique objectives that determine what RSP solutions to employ, perhaps now is a good time to review your original portfolio objectives and re-evaluate the decisions that went into its formation.

Personal financial risk vs. investment risk

If it has been a few years since a review, It may be best to start with a fresh look at your goals (Identifying your Goals) and how they stack up with any new realities.

A good place to begin is with a review of your risk tolerance levels. Many industry members have developed a number of simple score cards that try to determine your risk tolerance. (We are not alone in this matter - see our Investor Score Card). If you do use such tools, you need to understand their limitations. For the most part these simple quick answer methods do not accurately assess your propensity for risk, and should be used only as a pointer stick.

The last few years where real losses may have been occured, provides clues to your personal financial risks levels, if you have had to deal with portfolio meltdowns. So when the questionnaire asks "how much money can you afford to lose?", your answer may come from actual experience.

The problem with any self-testing risk tolerance method, is that you should have some practical "experience" in order to provide a questionnaire with factual answers. For the more adventurous a professional, lengthy questionnaire could get you to the mark with a little more accuracy. However, for those investors who are hoping "close" is good enough - you may find it a harder task building an investment portfolio, that gets you "close" or is in tune with your goals and aspirations, without the advice of a seasoned advisor.

Choosing investments

Much like the score-card questionnaires on personal risk, you can also find tools that help you select portfolio types.

For the most part, such tools do not address personal risk in the same fashion. Their objective is that of asset allocation. The investment world has many more types of risks (see Understanding Risk) and they need to be separated from personal risk tolerance. Investment risk (which is the risk inherent in the return required to meet your longer-term financial goals) may not exactly correspond to your personal risk tolerance,( the level of risk with which you are comfortable.)

More often than not, your personal risk tolerance is less than the risk required to meet your financial objectives. So, if portfolio-picking investment programs that "resolve" this gap are used, you may be selecting a compromise asset allocation based on the test designer's values not your own. Again we would advise the input of a professional.

More on..

Investment objectives As you mature, your needs and goals evolve to reflect your changing circumstances. For example, early on in your investment life cycle, your primary investment objective may be long term growth for your retirement with some liquidity to cover unexpected situations. As you near retirement, capital preservation and income may be your priorities.

Retirement: Saving and spending Your current investment plan should address all of the concerns that you have about your financial future. The lifecycle of an investment plan closely resembles your own as it stretches from when you start out in the financial world to when you reach your retirement milestone. Your investment plan will alter and change just as your needs and goals change as you age.

Risks and Rewards: You'll never eliminate risk entirely, but you can evaluate it and manage it by thinking long term, diversifying, using professional money managers and keeping a level head.

Types of retirement plans: With the maze of options facing those looking at investing in RRSPs, it really should not come as a surprise that for many, the first few months of the new year can be a very confusing time. We have complied and explained a few of the more popular choices to help you make the most of what has come to be known as RRSP season.

Figuring out how much you need - web calculators and worksheets

Retirement Savings & Income Calculator - Show the regular RRSP contribution needed to achieve a specific retirement income.

What should you be saving for retirement? - Calculate the amount needed to sustain your ideal retirement. Based on the popular financial worksheet featured in the book 'The Pension Puzzle', written by Bruce Cohen and Brian Fitzgerald.

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