RRSP Q&A: How should my portfolio be balanced? - MoneySense

RRSP Q&A: How should my portfolio be balanced?

Answers to your RRSP questions.


From February 16 to 19, 2010, MoneySense.ca’s top financial planners are answering your RRSP questions. For the full list of questions answered — or to submit a question of your own — click here.

I am 63 years old and currently have saved $332,000 with $270,000 in RRSPs and $52,000 in non sheltered, in TFSA and investments. I know that this is not much and I plan to work another three to four years but probably will not be able to put any more money aside. My question is where should I have my money invested? I read that 50% should be in bonds but I really do not like them. I don’t know why. I have approx. $120,000 in blue chips stocks, $60,000 in GICs and some bonds, $55,000 in Canadian equities and $75,000 in foreign equity. —David Barton

Karin Mizgala: The first step is to figure out how much income you need to cover your lifestyle needs in retirement and what rate of return you’ll need from your investments.  You can work out the numbers with your financial advisor or use retirement planning software like the Canadian Retirement Income Calculator.

Let’s assume that you need a 5% rate of return.  Create a target asset mix for your RSP and non-RSP portfolios that combined will have the potential to provide you with the rate of return you need.  A suitable mix for your RSPs would be 30% Canadian equities/Blue Chip, 20% Foreign Equities and 50% Canadian bonds.  Assuming that you would be drawing on your non-RSP monies first at retirement, a mix of 50% cash (so you have funds to draw on) and 50% Canadian equities (for tax advantages of Canadian dividends and capital gains) makes sense.

The reason to hold bonds is that they provide diversification into another asset class and historically they have yielded a better return than cash investments with less risk than stocks. You may need to educate yourself more on how bonds work to figure out why you’re not comfortable with them.  But if you decide you really don’t like bonds and can get the rate of return you need with a mix of cash and stocks, that works too.

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