The best way to rebalance multiple couch potatoes

TFSA, RRSP and LIRA accounts require special attention once a year

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Q: I’ve had a Couch Potato portfolio with four ETFs for a number of years. Between myself and my spouse we have six accounts: a TFSA and an RRSP each, plus a spousal RRSP and a Locked-In Retirement Account (LIRA) from a former employer. When rebalancing, is it wise to treat each account separately, or should I consider them parts of a single portfolio?

Kees, Calgary

A: The Couch Potato strategy can be very simple when you’re managing just one or two accounts. But as you’ve learned, Kees, juggling a half-dozen can be much trickier.

It’s usually best to think of all household accounts as a single portfolio, as long as they all have the same goal. Chances are you and your spouse plan to use your TFSAs and RRSPs (including the spousal and the LIRA) to fund your retirement, so all of your registered savings have the same long-term objective. It would be different if, for example, you were earmarking your TFSA savings for a downpayment, or if you also had an RESP to pay for a child’s education. Those accounts have different goals and would need to be treated separately from your long-term savings.

Here’s an example of how a portfolio might look when spread across six accounts, assuming a total value of $400,000 and a target of 25% to each of the four major asset classes: bonds, Canadian equities, Us equities and international equities.

Asset Class TFSA TFSA RRSP RRSP Spousal RRSP LIRA Total ($) Total (%)
Bonds 25,000 25,000 25,000 25,000 100,000 25%
Canadian equities 10,000 10,000 50,000 30,000 100,000 25%
US equities 10,000 10,000 50,000 30,000 100,000 25%
International equities 10,000 10,000 50,000 30,000 100,000 25%
TOTAL 30,000 30,000 75,000 155,000 85,000 25,000

As you can see, Kees, the overall portfolio includes a 25% allocation to each asset class, but no individual account has that mix. Setting up a portfolio like this allows you to reduce your overall number of holdings, which reduces trading costs, and can make your portfolio more tax-efficient. But it can make rebalancing challenging, since you can’t move cash from one registered account to another.

Here are a few tips to help you set up a portfolio with multiple accounts:

  • It’s a good idea to hold equities in your TFSA: this will allow you to enjoy a lifetime of tax-free growth on the assets that should deliver the highest long-term returns. It usually makes sense to keeping slower-growth bonds in the RRSPs, since future withdrawals will be taxable.
  • You’ll probably do most of your rebalancing in the largest accounts, as well as the ones where you’re contributing the most new money. So try to hold most or all of the asset classes in these accounts to give you the most flexibility.
  • Locked-in accounts such as LIRAs will never see new contributions, so if they’re small, just keep one asset class there so you’ll rarely need to make a trades.

Don’t obsess over finding an optimal strategy for which funds go where, especially if all of your accounts are TFSAs and RRSPs. It’s much more important to make sure your overall asset mix is on target and that you rebalance from time to time.


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