The Registered Disability Savings Plan (RDSP) is arguably the most powerful wealth building tool offered to Canadians with disabilities. With matching grants of up to 300%, plus free bonds without a having to deposit a single penny, it provides a level of government support unlike any other registered account. Despite the potential for long term wealth accumulation, investment strategy inside the RDSP is a far too often polarizing decision. The end result is that many account holders will evaluate their risk profile and fall into one of two categories, namely the risk seeking and the risk adverse.
The risk seeking optimistic investor
This investor type sees the governments free money as a license to gamble. They treat their RDSP like a high leverage trading account, buying high risk stocks, options or volatile cryptocurrencies. They are certain that everything they buy is going “to the moon”.
Withdrawing after losing money on investments inside an RDSP
What happens when a person’s appetite for risky investments meets the strict reality of the RDSPs Assistance Holdback Amount (AHA)? One of the rules of the RDSP is that a withdrawal via a Disability Assistance Payment (DAP) is not permitted if the Fair Market Value (FMV) of the account after said withdrawal would be less than the AHA. In other words, if the total amount of grants and bonds received in the last 10 years exceeds the current value of the account, withdrawals are not allowed.
Example:
Lets say an RDSP was opened in 2026, and a personal contribution of $1,500 was made into the account. Because the beneficiary’s income is below the threshold, the government provides the maximum $3,500 Grant and a $1,000 Bond. The RDSP has an account balance of $6,000, and the AHA is $4,500, which is the total government money received in the last 10 years. If the account holder decides to invest the entire balance into a speculative stock or cryptocurrency and the investment crashes and loses 50% of it’s value, the new RDSP balance would be $3,000. However, while the account value decreased, the AHA remains the same ($4,500) and the account holder would not be allowed to withdrawal from the plan until the balance is greater than the AHA threshold. The remaining balance after a withdrawal must stay above the $4,500 AHA.
The risk adverse ultra conservative investor
Haunted by the fear of market crashes, this investor leaves their RDSP in a low interest cash account earning little to no interest. While their balance never goes down, their wealth is slowly being eaten up by inflation.
Understanding risk and risk tolerance
Risk is an ambiguous term. Risk is typically associated with a stock market crash or a bad investment going to zero. But what about the risk of running out of money later in life because the investor was too conservative, is that not also risky? For many disabled Canadians, the greatest risk isn’t a temporary market dip, it’s the risk of running out of money later in life.
Taking risk is how diligent investors build wealth. With the RDSP’s long term time horizon, being too conservative and parking the money in a cash account earning little interest and losing to inflation is a risk in itself. This is sometimes known as purchasing power risk, and playing it too safe is actually a choice to lose money slowly.
Example:
If inflation is 3% annually and a safe investment earns 1%, the net result in the investor losing 2% every year. In the finance world, this is known as a negative real rate of return.
Calculating risk
Risk propensity is being able to tolerate fluctuations in investments in exchange for long term expected growth. The goal is not to avoid risk entirely, rather to cautiously and meticulously decide the appropriate amount of risk that align with the comfort level and long term goals of the account holder and beneficiary. Taking calculated risks by investing in a diversified portfolio is an ideal strategy against a future where money doesn’t buy what it used to because of inflation.
Note – Because the government provides such a substantial return of up to $4500 in grants and bonds on a $1500 deposit, the RDSP investor starts with upwards of a 300% return after the government funds have been deposited. The RDSPs generosity makes it much easier to handle a 20% or 30% stock market correction compared to a someone who is investing entirely with their own money.