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Many seniors are deeply concerned about the performance of their RRIFs in the current financial climate. The markets will eventually turn, but right now seeing the Dow drop over 1,000 points in a day is frightening.
My best advice is to have a well-thought-out plan for managing your RRIF and sticking to it. You don’t have to emulate my model RRIF portfolio, but look carefully at how it is managed and practice the same disciplines with your own plan.
This portfolio was created in February 2013 for my Income Investor newsletter. It had an initial value of $49,910.30.
This portfolio differs from an RRSP in two fundamental ways. First, it is lower risk. RRIF investors are in their retirement years, and preservation of capital becomes more important as a result. A major stock market crash would make life very difficult for those who rely on their RRIFs for income.
Second, the portfolio should generate income to provide cash for the annual withdrawals. That means focusing on securities with good yields as opposed to those that depend on capital gains for investor returns.
Here are the current positions with a commentary on how they have fared since the last review in February. Prices are as of the close on Aug. 19. They will, naturally, have changed in this volatilie market, but this is designed to be a longer-term income-oriented portfolio.
EQ Bank GIC. At the time of our February review, EQ Bank was offering a six-month GIC that paid an annualized rate of 2.05%. We invested $8,259.29 in this GIC. It has now matured, paying us a total of $84.66 in interest. We have $8,343.95 to reinvest.
iShares Core Balanced ETF Portfolio (TSX: XBAL). This is a fund of funds that invests in eight basic iShares ETFs, with a current mix of about 61% stocks, 39% bonds. With both the bond and stock markets struggling this year, it’s no surprise that XBAL units lost $1.68 in the latest six-month period. We received two quarterly distributions totaling $0.285 per unit.
Royal Bank of Canada Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO (TSX: RY.PR.S). This preferred was added two years ago. It produced a total return of 30% in its first year, but the shares gave back $0.50 in the latest period. It pays a quarterly dividend of $0.30 ($1.20 per year). The next reset date is the fall of 2023. If interest rate projections develop as expected, the return on this preferred should increase at that time.
Granite REIT (TSX: GRT.UN). This REIT operates the properties of Magna International and has diversified into other areas. REITs have been struggling lately, hurt by rising interest rates and fears of a recession. Granite lost $10.86 per unit in the latest period. The good news is that it has bounced back from its July low of $73.34. We received distributions of $1.548 per unit.
BCE Inc. (TSX: BCE). BCE shares more or less broke even during the latest period, dropping $0.08. That was more than offset by a 5.1% dividend increase to $0.92 per quarter.
Pembina Pipeline Corp. (TSX: PPL). Pembina shares continued to rally as the energy sector was the one bright spot on the TSX in the first half of the year. The stock gained $6.29 in the latest six-month period. The monthly $0.21 dividend remains intact. We received six payments totaling $1.26 per share.
Brookfield Infrastructure LP (TSX: BIP.UN). This limited partnership invests in infrastructure projects around the world. The shares split 3 for 2 on June 13, boosting our total to 375. We received two distributions of US$0.36 each (adjusted for split).
Firm Capital Mortgage Investment Corp. (TSX: FC). The share price has been hurt by rising interest rates, dropping $1.69 in the latest period. But the stock continues to pay a steady monthly dividend of $0.078 ($0.936 a year), with a year-end top-up in December.
iShares S&P/TSX Capped Utilities Index ETF (TSX: XUT). This ETF invests in a portfolio of utilities stocks traded on the TSX. Utilities have done better than most sectors this year and the units gained $3.14 in the latest six months. We received distributions totaling about $0.55 per unit.
Innergex Renewable Energy Inc. (TSX: INE). Green energy stocks are mostly down this year along with the market. In my February review, I said this stock looked oversold at $17.50. Turns out it was. As of Aug.19, the shares were up $1.97 since then, but have been on a roller coaster ride recently. The stock pays a quarterly dividend of $0.18 ($0.72 a year).
Toronto-Dominion Bank (TSX: TD). Banks normally do well during periods of rising interest rates, so we added 100 shares of TD to the portfolio in February. Then a strange thing happened – bank shares fell across the board on fears of a recession. As a result, we lost 16% on this investment during the period. But the banks will come back, as they always do, so we’re holding on to this position.
Here’s a look at the RRIF Portfolio as it stood at the close of trading on Aug. 19. Note that commissions are not deducted, and that U.S. and Canadian currencies are treated at par. Although this is a RRIF portfolio, withdrawals are not factored in, as this would make it impossible to track performance accurately.
Fixed-income investments continued to be hurt by rising rates during the period, but fortunately we sheltered a large chunk of cash in a short-term GIC. We took a hit on our new investment in TD Bank, but over the long term, these shares should perform well for us. Granite REIT and Firm Capital also lost ground, both hurt by higher rates. But we recorded decent gains from Pembina Pipeline, Innergex, and Brookfield Infrastructure.
As of Aug. 19, the total value (market price plus retained earnings) was $91,370.10 compared with $88,770.89 in February. That represents a gain of 2.9% for the portfolio in six months.
Since inception nine and a half years ago, we have a cumulative total return of 83.1%. That works out to an average annual compounded rate of return of 6.57%. Our target is in the 5% to 6% range, so we are running slightly ahead of that goal.
We have $8,343.95 from our GIC to reinvest. EQ Bank is offering a one-year GIC at 4.4% for registered plans. This is well suited to the current situation. We’ll receive a decent return for our money, without having to tie it up for an extended period. EQ Bank is a member of the Canada Deposit Insurance Corporation, so our capital and interest are protected.
We will use retained earnings to add another 10 shares of Firm Capital at $12.55, for a total payout of $125.50. That will give us 490 shares. Our retained earnings will fall to $99.14.
We have retained earnings of $1,536.55, which we will deposit with Saven Financial, which is paying 2.85% on its high-interest savings account.
Those are the only moves we’ll make for now. We’ll see how the portfolio performs between now and the next review in the February issue of Income Investor.
Here is the revised portfolio.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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