Rate of Return: 5.6%
RRIFs require a unique investment strategy. The plan holder aims to generate enough cash flow to cover the minimum withdrawal requirements, while at the same time protecting the assets against steep market declines. At times, that can lead to a difficult juggling act.
My model RRIF portfolio was created in February 2013 with an initial value of $49,910.30. We now have 12 1/2 years of experience, and the performance is about what we originally expected.
This portfolio differs from an RRSP in two fundamental ways. First, it is designed to be lower risk. RRIF investors are in their retirement years, and preservation of capital becomes more important as a result.
Second, the portfolio should generate enough income to provide cash for the annual withdrawals without dipping into capital, at least in the early years. That means focusing on securities with good yields as opposed to those that depend on capital gains for investor returns. These securities tend to be interest sensitive.
The original objective was to provide a better return than you could get from a five-year GIC. According to ratehub.ca, the best five-year rate for a registered plan at this time is 3.85% from EQ Bank. This portfolio has consistently done better.
Comments: Most of our securities did well, and any losses were minimal. Power Corporation was the biggest gainer, as the share price jumped 21%. RBC was ahead 12.8%.
As of Aug. 22, the total portfolio value (market price plus retained earnings) was $98,545.74 compared with $93,388.29 in February. That’s a six-month advance of 5.4%. Our annual target is 5% to 6%, so we are well ahead of that pace. Cash flow was $2,023.41, or 2.2% of the total value in February.
Since inception 12 1/2 years ago, we have a cumulative total return of 97.4%. That works out to an average annual compound growth rate of 5.59%.
Changes: We will not make any changes to the portfolio except to deploy some of our cash reserves as follows.
CSAV – We will buy 10 units for a cost of $501. We now own 440 units and have $16.13 in retained earnings.
RY.PR.S – We’ll purchase another 10 shares for $264.50. That increases our position to 320 shares and reduces the accumulated cash to $196.66.
PPL – We will add 10 shares at $52.66, for a total payment of $526.60. Our cash remaining is $126.10.
FC –We will buy 20 shares of Firm Capital at $12.08, for a total payout of $241.60. That will give us 630 shares. Our retained earnings will fall to $90.65.
We have cash and retained earnings of $4,169.94, which we will move to Tangerine Bank. It is offering a special promotion for new accounts, which pays 4.5% for five months.
Here is the revised portfolio. I will revisit it in February.