Rate of Return: 6.6%
It’s rare to have our model RRIF Portfolio outperform the Growth Portfolio in our sister Internet Wealth Builder newsletter. The latter is designed to maximize capital gains. The goal of the RRIF Portfolio is to protect assets and generate enough income to cover the annual withdrawals. Risk is kept to a minimum.
The mandates are like chalk and cheese. But for now, at least, the chalk is winning. Momentum is slowing in the tech sector, but low-risk blue chips continue to perform well. RRIF investors can rest easy.
Our model RRIF portfolio was created in February 2013 with an initial value of $49,910.30. We now have 13- 1/2 years of experience, and the performance is beating our original target, which 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 4.1% from Oaken Financial. This portfolio has consistently done better.
Many people use GICs or other cash-based securities as part of a RRIF. But they’re locked in until maturity, so the money may not be available in an emergency. We use high-interest ETFs, which may provide a slightly lower return, but which can be sold in a day if cash is required.
Here are the current positions in our portfolio with a commentary on how they have fared since the last review in March. Prices are as of the close on Aug. 21.
Comments: All our securities posted gains, which is a rarity. Royal Bank was the biggest winner in dollar terms as the share price jumped $63.87 (29%) during the period. But in percentage terms, Power Corp. was the best performer with a gain of more than 40%. Manulife Financial also did very well.
As of Aug. 21, the total portfolio (market price plus retained earnings) was valued at $118,648.94 compared with $106,388.80 last March. That’s a five-month advance of 11.6%. Our target is to beat Oaken’s 4.1% on a five-year GIC, and we are well ahead of that pace. Cash flow was $1,647.97, or 1.5% of the total value last March. We are running behind our annual 5% cash flow target but fortunately our capital gains are more than offsetting that.
Since inception about 13 1/2 years ago, we have a cumulative total gain of 1,086.45%. That works out to an average annual compound growth rate of 6.62%.
Changes: All our securities are performing well, so we won’t make any changes at this time. However, we will invest some of our cash reserves as follows.
XBAL – We’ll purchase 10 units at $35.96, for a total cost of $359.60. That increases our position to 220 units and reduces the retained earnings to $0. We have a shortfall of $2.33, which we’ll take from cash.
FC – We’ll add 60 shares for an expense of $705.60. That increases our position to 690 shares and drops the retained earnings to $27.69.
XUT – We will spend $349.40 for 10 more units of this ETF. We now own 200 units. Retained earnings drop to $0. We are short $4.09, which we will take from cash.
We now have cash and retained earnings of $5,424.85, which we will move to Oaken Financial. It is offering 2.8% on a savings account with no transaction fees.
Here are the current positions in our portfolio with a commentary on how they have fared since the last review in March. Prices are as of the close on Aug. 21.