Q&A With Gordon Pape: Is My RRIF Allocation Too Aggressive?

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Gordon Pape advises a reader who thinks his asset mix is too aggressive.


Q – I am 72. My main revenue is from my RRIF. I am now invested about 50 per cent in Canada and 50 per cent in the U.S. My asset mix is U.S. equity 15 per cent, U.S. cash 33 per cent, Canadian equity 10 per cent, Canadian cash 42 per cent.

Would you please comment on that spread? Is it too aggressive?

Should we anticipate a significant change in the value of the Canadian dollar versus the American dollar in the near future?

Thank you for your opinion. – Marcel B.

A – Your allocation is not aggressive at all. In fact, it’s much too conservative. Yes, these are uncertain times but holding 75 per cent of your RRIF in cash is overkill, especially when you are counting on it as your main source of income. I doubt that your equity holdings are generating enough cash flow to meet the minimum withdrawal requirements, which means you are encroaching on principal.

Here is an alternative conservative approach. Figure out how much cash you will need over the next three years and retain that amount, half in Canadian and half in U.S. dollars. No one can predict with any degree of certainty how the exchange rate will evolve over that time, so hedge your bets.

Invest the balance in dividend paying stocks of sound companies. Focus on those with a history of regular dividend increases. Canadian examples would be Fortis, Canadian Utilities, Emera, BCE, North West Company, and the major banks. U.S. holding could include AT&T, Verizon, and Duke Energy. Maintain the 50-50 split here as well.

Your RRIF will generate more income and the cash position will protect you from having to sell when the market is down. – G.P.

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