What Should You Do With the Stocks in Your RRSP During a Turbulent Stock Market?

Market trends and financial data displayed on a monitor, illustrating the dynamic nature of stock market fluctuations.

The stock market can be unpredictable, and when things get shaky (especially with global trade tensions and tariffs) it’s natural to wonder what to do with the stocks in your RRSP. The ongoing trade war between major countries like the U.S. and Canada has added extra uncertainty to the market, affecting stock prices and investor sentiment.  Since your RRSP is a tax-advantaged account, how you handle your investments can have long-term tax implications. Here’s a simple guide to help you make smart decisions about your RRSP stocks during a rough market.

1. Focus on the Long-Term Benefits of Your RRSP

One of the biggest advantages of an RRSP is tax deferral. This means you don’t pay taxes on the money in your RRSP until you take it out, usually during retirement. Even if the market is down right now, the value of your investments could go up again over time. Selling stocks in your RRSP during a dip could lock in losses, so it's usually better to ride out the storm.

Keep in mind that, since your RRSP is tax-sheltered, you don’t have to pay taxes on any growth or dividends inside the account until you take money out. The tax benefits are still there, no matter what the market is doing.

2. Don’t Sell Out of Fear

It’s tempting to sell stocks when the market is falling, but don’t rush into selling. When you sell stocks inside your RRSP, you don’t pay taxes right away. However, withdrawing funds from your RRSP means paying taxes on whatever you take out. So, if you sell and take money out of your RRSP in a panic, you could face a big tax bill.

The best move is usually to leave your investments alone and let them recover. If you take money out too soon, you may miss out on potential gains when the market turns around.

3. Rebalance Your Portfolio (Tax-Free!)

As stocks go up and down, your portfolio might get out of balance. If one part of your portfolio (like stocks) drops in value, it might no longer match your original plan. Rebalancing means buying or selling investments to get back to your ideal mix of stocks, bonds, and cash.

The good news is, you can rebalance your RRSP without paying any taxes. Unlike a regular investment account, you don’t need to worry about paying taxes when you move things around inside your RRSP.

4. Contribute More to Your RRSP to Save on Taxes

If you have the extra cash, consider contributing more to your RRSP. Contributions to your RRSP can lower your taxable income for the year, which might result in a bigger tax refund or lower taxes to pay. Even if the stock market is down, contributing more to your RRSP means you’re buying investments at lower prices, potentially setting yourself up for growth when the market recovers.

5. Don’t Withdraw From Your RRSP

If you're thinking about withdrawing money from your RRSP, think twice. RRSP withdrawals are taxed. This means that whatever money you take out will be taxed as income at your current rate, which could be much higher than if you waited until retirement.

In a turbulent market, withdrawing money may not be the best idea, especially if you don’t need it right now. Let your investments stay inside your RRSP to keep benefiting from tax deferral.

6. Consider Dividend Stocks for Stability

If you’re looking for some stability in a volatile market, dividend-paying stocks could be a good option. These stocks pay you regular payments (dividends), and inside an RRSP, you won’t pay any tax on these dividends until you take the money out. This makes dividend stocks a great fit for RRSPs, especially when the market is unpredictable.

7. Use the RRSP Tax Deduction

One of the best things about contributing to an RRSP is that your contributions are tax-deductible. This means that if you contribute to your RRSP, your taxable income goes down, and you pay less in taxes for the year. If you can afford it, adding more to your RRSP during a down market could give you a tax break now, while also allowing you to buy investments at a lower price.

8. Get Help From a Tax Professional

If you’re feeling uncertain about what to do with your RRSP in a turbulent market, it might be a good idea to speak with a tax professional. A CPA can help you figure out the best moves to make for your situation, so you don’t end up paying more taxes than necessary.

Conclusion

The stock market can be tough to navigate during times of volatility, but remember that your RRSP offers big tax advantages. By sticking to your long-term plan, contributing to your RRSP, and not panicking by making withdrawals or selling, you can make the most of your retirement savings.

If you need help with your RRSP or tax planning, reach out to our CPA firm. We’re here to help you make smart decisions with your investments and reduce your taxes.