Should Marcel move all his RRIF investments to a low-risk balanced fund?

Should Marcel move all his RRIF investments to a low-risk balanced fund?

He wants to lock in equity gains and reduce volatility


Q. I am in my early 70s and have 55% of my RRIF in a bond index fund and 14% in an international equity index fund. Both are currently showing losses: I realize that with the international fund, this is mainly due to political happenings. The rest of the portfolio is in a Canadian equity index fund and a sector fund, both of which have substantial gains? I’m also considering purchasing Linamar stock for my TFSA. Would I be better off switching everything to a low-risk balanced fund that will bring me a secure, if limited gain.


A.  I can’t offer you specific advice about what funds or stocks you should buy, Marcel, but I can try to give you some perspective that will help you arrive at your own decision.

The first point to make is that when you’re drawing down your investments in retirement, you shouldn’t be trying to reposition your portfolio based on news headlines. It’s true that 2018 has been a negative year for several asset classes, but anyone holding a balanced portfolio needs to accept that short-term declines are inevitable. If your strategy is to sell an asset class after it has fallen in value and move to something else, that is a recipe for disappointment.

I would also suggest that you resist the urge to pick individual stocks and sector funds. I discourage this for all investors, actually, but it’s particularly risky to concentrate your portfolio on a small number of stocks or sectors when you’re retired and no longer able to add new money. At this stage, your portfolio should include a global mix of diversified equity funds, not individual stocks or narrowly focused sector funds.

Marcel, I like your suggestion of switching to a low-risk balanced fund. Using such a fund would provide all the diversification you need: you don’t need any expertise in building a portfolio from scratch. Moreover, using a balanced fund allows you to focus only on the return of the whole portfolio, rather than the individual components. That means you’ll be less tempted to sell the losers or tinker with your strategy. There is plenty of research showing that investors who hold balanced funds are more likely to behave with discipline.

Just one caveat: even a balanced fund will not provide “a secure if limited gain.” Any time your portfolio holds a mix of stocks and bonds, no matter how well diversified, your gains will never be “secure,” if by that term you mean steady and consistent. Even a balanced fund will experience high returns in some years and losses in others. Make sure your expectations are realistic and add some GICs or cash to your portfolio if you want some level of consistent income with no chance of loss.