Bold opening: If you’re worried about retirement and have no pension, RRSPs could be your strongest ally, and this portfolio shows how tax-sheltered growth can approach impressive returns. But here’s where it gets controversial: not all RRSPs perform this well, and results depend heavily on timing, selection, and discipline.
A bygone stereotype held that Canada’s year rolled through five seasons: spring, summer, autumn, winter, and RRSP season. In January and especially February, advertisements flooded the airwaves urging a last-minute RRSP contribution before the March 1 deadline to snag a tax deduction.
Today, that advertising crescendo is a shadow of its former self. Financial institutions still seek your money, but the dominant emphasis on RRSPs has faded. We’ve returned to a four-season climate for retirement planning, not the once-ubiquitous RRSP-driven frenzy. Yet this does not diminish the importance of saving for retirement. In fact, current Statistics Canada data show that about 60% of employed Canadians do not have an employer-sponsored pension, meaning individuals must take the initiative to fund their own retirements.
RRSPs offer two key advantages. First, contributions are tax-deductible up to the annual limit; for 2024, the deduction equals 18% of earned income, up to a maximum of $32,490. Second, investment income inside the RRSP grows tax-free until withdrawal, at which point withdrawals are taxed at your marginal rate.
When used judiciously, an RRSP can accumulate into a substantial retirement fund over time. In my book RRSPs: The Ultimate Wealth Builder, I argue that starting early and contributing consistently can yield a portfolio worth several million dollars.
Of course, like any investment, RRSP assets require thoughtful allocation and ongoing monitoring. To support this, I launched an RRSP model portfolio in February 2012 and have tracked it twice yearly ever since.
Core goals: preserve capital and achieve a return that outpaces a traditional guaranteed investment certificate (GIC). The original portfolio value was CAD 25,031.92.
Portfolio composition: a blend of exchange-traded funds (ETFs) and individual stocks. Readers who wish to replicate this approach should have a self-directed RRSP with a brokerage.
Current holdings (as of February 11, with performance since the last review in August):
- iShares 0-5 Years TIPS Bond Index ETF (XSTP-T): invests in short-term U.S. government inflation-protected notes. Returns are modest, but face value and interest rise with inflation, providing downside protection. The holding declined by CAD 1.32 per unit since August, while distributions totaling CAD 0.95 per unit were received. Distributions are monthly but vary in amount.
- CI High Interest Savings ETF (CSAV-T): targets high-interest deposits at Canada’s major banks, delivering higher yields than retail accounts due to scale. Its price fell CAD 0.05 per unit since August, with monthly distributions totaling CAD 0.5072 per unit, reflecting lower rates in the period.
- BMO S&P/TSX Banks Equal Weight Index ETF (ZEB-T): concentrates on the Big Six Canadian banks. Banks performed well, driving a substantial gain of CAD 12.34 per unit, with monthly distributions totaling CAD 0.872 per unit.
- iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (XMS-T): focuses on low-volatility U.S. equities. The fund posted a small gain of CAD 0.24 in the latest period, with quarterly distributions totaling CAD 0.21 per unit.
- BMO Low Volatility Canadian Equity ETF (ZLB-T): holds large-cap Canadian stocks with low beta. It rose by CAD 3.26 since the last review, supported by two quarterly distributions totaling CAD 0.57.
- BMO Low Volatility International Equity Hedged to CAD ETF (ZLD-T): targets international stocks and eliminates currency risk by hedging to the Canadian dollar. It gained CAD 0.60 in the latest period, with distributions totaling CAD 0.34 per unit.
- Brookfield Corp. (BN-T): diversified across real estate, asset management, renewables, infrastructure, and insurance. After a 3-for-2 stock split in October, the position stands at 300 shares. It paid two quarterly dividends totaling CAD 0.166 per share, and recently announced a dividend increase to 0.07 USD per quarter.
- Enbridge Inc. (ENB-T): offers a solid yield (about 5.4%) with modest upside. The holding is up CAD 3.28, and the quarterly dividend is CAD 0.9425.
- Fortis Inc. (FTS-T): interest-sensitive, with modest gains in the latest period; one dividend of CAD 0.64 was received due to timing.
- Manulife Financial Corp. (MFC-T): added about a year ago and performing well, up CAD 9.66 in the latest period, with a CAD 0.44 total dividend.
Cash and liquidity: a cash balance (including retained earnings) of CAD 3,061.22 was moved to Tangerine Bank, which offered a promotional 4.5% on new accounts for five months, yielding CAD 57.40 in interest.
Performance snapshot (as of February 11, excluding commissions): the portfolio rose 7.4% over the past six months, with all securities except XSTP in profit. The strongest gains came from Manulife and the BMO Banks ETF.
Long-run track record: since inception 14 years ago, the portfolio delivered a total return of 250.6% (about 9.37% annualized), outperforming the target benchmark.
Strategic adjustments: given the current upside and downside protections provided by XSTP and CSAV, those two holdings are now delivering limited returns. The plan is to sell XSTP and replace it with the iShares Core Canadian Corporate Bond Index ETF (XCB-T) to pursue a potentially higher return with reduced risk.
Trade details: sell XSTP for CAD 6,180.37 in total proceeds (including retained earnings) and purchase 300 units of XCB at CAD 20.40 for a CAD 6,120 cost, adding CAD 60.37 to cash. Also buy 10 more Fortis shares for CAD 739.90, increasing the count to 80; fund this by using CAD 682.89 from retained earnings and CAD 57.01 from cash.
Cash position after trades: CAD 2,852.74 in the aggregate cash balance, relocated to Kawartha Credit Union High Interest eSavings Account at 2.25% on RRSP accounts.
Revised outlook: the updated portfolio will be revisited in August.
Contributor note: Gordon Pape serves as editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
