My Current RRSP Investment Portfolio

Last modified on September 28th, 2013

I’ve gone through various mutual fund companies and financial planners over the years, but ultimately decided last year to take my finances into my own hands and manage my own portfolio.

My main issue with the financial planning/advice market is that there is an inherent conflict of interest in most of the advice given out. Yes, a par-life plan may in fact be a great investment vehicle, but when your purchase of one results in a $1,000 bonus for the financial planner, how can anyone ever be sure that the advice was given solely because it was in your best interest? Also, most mutual funds have trailing fees build in, which are effectively sales commissions that go back to financial planners who sell them. The majority of mutual funds presented to clients of financial planners have MER (management expense ratios) of between 1.5% – 3.0%, with the majority (in my experience) being around 2.5% in Canada. That means that if the market completely flat lines for an entire year, you’ll lose 2.5% due to management fees, some in the form of trailer fees, and others for the mutual fund manager who manages each fund.

Now, I’m not saying financial planners don’t deserve to get paid, because they do. In fact, that model may in fact appeal to people who are in such a financial mess that they wouldn’t have the ability to pay a financial planner directly. So, there are definitely benefits to a model where you don’t have to pay anything up front. It’s just not the one I prefer these days.

If I were to go back to a financial planner (and it may happen in the future), I would definitely choose a fee-only planner, that is someone who doesn’t receive commissions on any of the products they recommend. Most work on a percentage system, i.e. 1% of the value of your entire portfolio. That may seem like a lot, but many fee-based planners spend the time to check into and rebalance your investments from time to time, which takes time and effort, proportional to the amount of assets you have. Due to the lack of a conflict of interest, it’s a lot easier to trust their advice as well, which I think is how it should work. Another benefit is that as a professional fee, it’s a tax write off. So if you are in the 43% tax bracket, that 1% becomes more like 0.57%.

That said, I manage my own finances these days. Last year I looked into the mutual funds with the lowest fees, and almost unanimously people recommended TD Financial’s Index funds, which is my main retirement vehicle. Index funds work on the promise that nearly all managed mutual funds under perform the market, due to the high expense ratios of the products. So, if a mutual fund charges 2.5% in management fees, it stands to reason that it will almost always under perform the market due to that amount of money being taken from the fund.

Index funds work on the reverse concept – that is, if most managed mutual funds under perform the market (as measured by the major indices, such as the S&P 500), it makes far more sense to simply buy these indices directly. Since the S&P 500 index is simply the top 500 companies in the US market, there’s no real management associated with the fund, since the allocations only change when a company drops out of that list or moves into it. As a result, the management fees for index funds are often negligible (some index funds in the US have an MER of around 0.06% – peanuts).

My main allocation looks like this:

Canadian cash (in a money market fund) – 5%
Canadian Index fund (tracking the TSX) – 30%
Energy Sector (tracks energy based commodities) – 15%
Precious Metals (tracks silver and gold primarily) – 15%
US Index fund (tracking the S&P 500) – 15%
Japanese Index fund – 5%
European Index fund – 5%
Canadian Bond index fund – 10%

So about 85% of my portfolio is higher risk, with about 15% being low risk (cash and bonds). I used to be adverse to holding cash in my portfolio, but I’ve actually made good use it of a few times. For example, I’m a big believer that gold and silver are going to continue to increase in price. The last few weeks have seen a big sell off in silver, with the price dropping from about $30/ounce to around $27/ounce. While many people started selling, I logged into TD and bought a bunch more, bringing the weighted cost of that portion of my portfolio even lower. When I make my contribution next month, I’ll simply leave it in cash to bring the cash portion of my portfolio back into line with my targets.

One of the aspects of managing your own portfolio is that it periodically needs to be rebalanced. For example, if precious metals do extremely well, at some point the target allocations listed above get out of whack, and the portfolio takes on another element of risk. For the most part, I try to rebalance with my monthly RRSP contribution. So, if I buy $600 a month in RRSPs, I use that to bring the ratios back in line with where I want them. If that’s not possible, I generally hold out for a few months and then rebalance the portfolio manually (by selling items that are higher than my targets and buying items that are lower than my targets). This has the added benefit of forcing you to sell when something is high and buy when it’s low, the proper strategy but one that very few people do (people tend to want to buy sectors when everyone else is buying, and sell them when everyone else is selling). If you’re looking to rebalance your own portfolio, try this free online portfolio rebalancer.

The precious metals above are represented by precious metal stocks, most in the form of mining companies. At some level it acts like a leveraged investment against the real price of precious metals, which is good and bad. Ideally I’d like that portion of my portfolio to be actual physical metal (since I really don’t trust the fact that you can buy paper certificates representing metal in vaults – that seems no safer to me than fiat money in general). I actually bought my first physical silver a few months ago, and would like to continue accumulating it as I get older (partially because I think it’s a good investment, but also because it’s pretty wicked cool to hold a bar of 99.9% silver in your hand!)

I also have a few other strategies, but I’ll save those for another day. In terms of fees, my weighted expense ratio on my portfolio is around 1% right now, mostly due to the higher MER for the Energy sector funds as well as precious metals. Once my portfolio grows a bit larger, I’ll probably switch those to ETFs, since they have much lower fees and ultimately represent the same part of the market I’m after. But with the added transactions costs of ETF purchases, it doesn’t make sense for me at this point in time to switch those over. Maybe in another year or so.

I haven’t made much use of my TFSA yet, although I do have an account with a small amount of money in it. I’m in the process of changing that though, since I like the idea that a TFSA is easily accessible in an emergency situation (there’s no tax hit if you need to dip into it). So I may hold off on the RRSPs for a year or two and try to max out my TFSA room. That makes a lot of sense to me, especially while I’m traveling – I may need access to fast cash if I ever get into a bind somewhere.

But that’s the low down on my current registered investments. Everyone has different strategies and allocations, so by all means drop some comments below and let everyone know what you are doing, or what your experience with saving for retirement has been, with or without a financial planner.

8 responses to “My Current RRSP Investment Portfolio”

  1. mark says:

    I think you lack emerging market exposure. The TSX is mainly made up of metals/energy anyways so you gain little diversification with it. Take maybe 10% in emerging markets and only 20% in TSX. How could you not invest in the likes of China, Brazil and India? Don’t think they’ll grow in the next 20 years?

  2. Duncan says:

    Hey Duane,
    Sounds like a nicely balanced portfolio! I agree that the mining stocks are a good place to invest in precious metals in your RRSP. They are still lagging the metals themselves in terms of gains and have (n my opinion) far more upside potential.

    Personally, I much prefer ETF’s over mutual funds. They trade like stocks, and at times, can be bought at a discount to their NAV. There’s also more volatility with ETF’s as well, so it really depends on ones risk tolerance. The upside is lower expenses and a more liquid product that I can buy/sell within seconds if needed. For exposure to the metals mining sector, I own XGD.TO from iShares Canada. The management fee’s are just .55% and I can buy and sell the ETF for under $9.95 per trade (total).

    I like your strategy of averaging out your cost base by buying on the dips. It’s a great way to build wealth for sure!

    The key is to have a plan and stick with it. In your case, it seems pretty clear that you’ve faith in the sectors you own which is critical when the tide turns and the markets short term seemingly defy all logic and commons sense (as happens often)

  3. Duane Storey says:

    The TSX does have some exposure, but a lot of the bigger companies are financials.

    Also, it’s obviously made up of Canadian companies, where as the other ones aren’t limited to Canada, so there’s extra diversification there.

    I actually would like to pick up some emerging markets – unfortunately the only real offering at TD for those sectors has a MER of almost 3%. So, I’ll hold off until I start switching some items to ETFs.

  4. Duane Storey says:

    @Duncan – I agree that ETFs are probably a better vehicle, but I’ve done the math and the fees are roughly the same right now based on the size of my portfolio (i.e, what I would save in MER I would probably lose in transaction costs), so I don’t really want to do the switch (which will probably involve me pulling myself out of the markets for almost a month as I move everything to another company, which is what happened when I moved to TD) at this point in time. But maybe in a year or so it’ll make more sense for me.

  5. Mike says:

    Hey Duane,

    Great post. Very few people your/our age think about this stuff. I hardly get to talk finance since none of my friends are at all interested!

    I had a couple of comments/questions:

    – I think you need to up your cash holdings. The cash portion of my portfolio sits around 24%, and that’s not including my bonds exposure. I will admit to having a conservative portfolio holding, but I still think 5% is very low. I know we’re young so we can afford extra risk, but 5% cash is quite low. I’d bump it up to 10% at the very least. Plus, you’re heavily exposed to rather risky funds like energy and precious metals. Regardless of your outlook on gold and silver, 30% of typically high-risk stocks is a lot!

    – What’s your dividend income looking like? Everything you are invested in (please correct me if I’m wrong) seems to gain from capital appreciation. Dividend income can help build your portfolio without you investing any more money yourself.

    My portfolio is based around maximizing my cash flow while lessening risk. I’m pretty conservative, and I realize that portfolios are based on a person’s risk profile, but I still think you should add more dividend income while lessening your exposure to energy and precious metals.

    Either way, I thought this was a great post and good luck!

  6. Duane Storey says:

    Thanks for dropping by, it’s always great to have another perspective.

    The problem with a huge cash reserve is that unless you are churning it or playing the currency market itself, that money is going to depreciate by the inflation rate. Right now that’s conservatively 2-3% but realistically higher. So I personally don’t think that much cash is generally a good idea, although Canadian cash has been appreciating against other currencies.

    I don’t think dividend producing assets are a good idea in a registered account as you can’t take advantage of the preferred tax rate for dividends. But as I build up a non registered account it makes more sense.

  7. Mike says:

    Thanks for the warm welcome!

    You’re right about cash – it won’t earn you much, if anything at all, but by having it in cash funds it should not go below inflation. In fact, interest rates are used to combat inflation, therefore if inflation is expected to rise then interest rates will increase to try and make sure inflation does not get out of control. Anyway, cash is meant more to decrease the risk in my portfolio anyhow.

    Same thing goes with dividends. You’re right, you don’t get to take advantage of their tax break, but a tax break is not the end of their usefulness. They’re a sure thing when it comes to growing your portfolio’s money. Right now your entire portfolio grows only through appreciation of stocks, which is entirely speculative. Even if someone has all the knowledge in the world, they can be beat because markets are hardly efficient and act illogically all the time. If precious metals and/or energy take a big hit then your portfolio is going to take a dive as well. More than it has to, and that’s even if you rebalance to your original allocations. Dividends, each and every quarter (or whenever they’re paid out), are guaranteed to increase your portfolio. Plus, they are based on stocks as well, so you can still gain through appreciation (though it won’t be as high since dividend-paying stocks are typically safer and fluctuate less).

    Anyway, just something to think about 🙂 My take is that you should put less risk on your portfolio by playing it a little safer. RRSPs are about a marathon and not a sprint. You’ve got 30+ years for this thing to grow, so you can afford more risk, but having some sure bets is never a bad thing either.

    Have a great night!

  8. Duane Storey says:

    Hey Mike, thanks for the information.

    I disagree with cash – right now interest rates are less than 1%, and inflation is more like 3%. So, it’s impossible to keep up with inflation in cash. I agree with reducing risk, but you’re doing it with an asset that is losing value in your portfolio (not in dollar value, but by what it can purchase someday). That’s why GICs are a poor investment right now as well.

    Dividend producing stocks are great too, but there is a speculative component to them as well (that you’ve pointed out). But I agree, they are less risky than most normal stocks. I plan to add some preferred shares at some point, but until I switch to a full broker I’m limited in the assets I can purchase.

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