While millions of Canadians will make RRSP contributions this year, it is important to be aware of the two investment strategies that are even better than RRSPs.

1. Mathematically, most Canadians are better off paying off expensive personal debts - those charging over 13% interest - before contributing to their RRSPs, says Talbot Stevens, financial speaker and author of Financial Freedom Without Sacrifice.

This means the priority should be paying off bank credit cards, and especially department store credit cards where interest rates are still 32.9% per year. This also means that generally, maximizing RRSPs should come before paying down mortgages, when the mortgage rate is less than 13%.

"It is almost impossible to beat the guaranteed returns of paying down expensive personal debts," says Stevens. "Accounting for the impact of taxes, someone in the middle tax bracket that doesn't pay off a 32.9% department store card is effectively turning down a 57% GIC." One of two Canadians with credit cards do not pay off their balances every month.

2. The second investment strategy that is better than RRSPs is conservative leverage.

"Done conservatively, with the guidance of a trusted financial advisor, leveraging — borrowing other people's money and investing it — has significant advantages over RRSPs as a long-term investment strategy," claims Stevens, who used his engineering background to objectively analyze the two strategies.

Stevens compared investing in RRSPs versus paying the interest on an investment loan to invest in equity funds to take advantage of the preferred tax treatment of capital gains. He looked at the tax treatment, investment restrictions, magnitude of initial investment, and a rigorous review of the real risks, and concluded that those with the collateral to borrow could do much better than RRSPs.

His figures, based on average historical returns, showed that after 20 years, the typical Canadian that invests $2,000 a year, would end up with an extra $165,000, by using the money for conservative leverage instead of putting it into RRSPs.

His figures, based on average historical returns, showed that after 20 years, the typical Canadian that invests $2,000 a year, would end up with an extra $165,000, by using the money for conservative leverage instead of putting it into RRSPs.

But anyone with a mortgage is already using leverage, perhaps without realizing it. 

A mortgage is highly leveraged, poorly diversified, fluctuating investment with low liquidity and poor future growth expectations for most parts of Canada, where the interest expense isn't even tax deductible! Using leverage for an investment instead of a house purchase improves each of these factors. Thus, anyone with a mortgage should be even more comfortable using leverage conservatively to invest.

The biggest drawback with leverage is that it is not as simple as RRSPs, which most people are familiar with and understand. For this reason, Stevens warns not to try leveraged investing on your own. "It is critical to stay conservative and get the help of a trusted advisor to ensure that you fully understand the pros and cons of leverage. It is also essential to choose good investments because leverage simply magnifies returns, it does not increase them. Leverage makes good investments better, and bad investments worse."

Talbot Stevens, author of Financial Freedom Without Sacrifice, is the president of a London-based financial education firm providing employer-sponsored workshops, and has started a petition to make basic financial education a mandatory part of the school system.

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Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of www.TalbotStevens.com. For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing judy@TalbotStevens.com.