Bold opening: If you’re steering toward retirement without a traditional pension, a well-structured RRSP strategy can bridge the gap—and it can work remarkably well when thoughtfully managed.
There was a period when Canada effectively had five seasons: spring, summer, autumn, winter, and RRSP season. In January and especially February, media floods the airwaves with reminders to contribute before the March 1 deadline to snag a tax break. Today, that full-flavored RRSP push is just a shadow of its former self. Financial institutions still want your money, but the once-dominant RRSP emphasis has faded. We’re down to four seasons now.
Yet that doesn’t mean retirement savings aren’t as important as ever. If anything, they’re more critical in today’s landscape. Statistics Canada recently reported that roughly 60% of working Canadians don’t have an employer pension plan, meaning many people must take retirement planning into their own hands.
RRSPs offer two clear advantages. First, every dollar you contribute is tax-deductible up to the annual limit. For 2024, that limit is 18% of your earned income, up to a maximum of $32,490. Second, the income generated inside the RRSP grows tax-free until withdrawal; when you take money out, it’s taxed at your marginal rate.
If used properly, an RRSP can accumulate a substantial retirement fund over time. In RRSPs: The Ultimate Wealth Builder, I argue that with early starts and steady contributions, it’s entirely possible to build a portfolio worth several million dollars.
Of course, like any investment, RRSP assets require thoughtful allocation and regular monitoring. To support this, I launched an RRSP model portfolio in February 2012 and have reviewed it biannually ever since.
Two primary goals guide the portfolio: preserve capital and outperform a standard GIC. The initial value was $25,031.92.
The portfolio blends ETFs and stocks, so readers aiming to replicate it should hold a self-directed RRSP with a brokerage.
Here are the holdings as of February 11, with reflections on performance since our last review in August. Note: figures are in Canadian dollars and exclude commissions.
- iShares 0-5 Years TIPS Bond Index ETF (XSTP-T). This fund targets short-term US government inflation-protected notes. Returns are modest, but both principal and interest rise with inflation, providing downside protection. The price per unit fell by $1.32 since August, and distributions totaled $0.95 per unit. Distributions occur monthly but vary in amount.
- CI High Interest Savings ETF (CSAV-T). This fund channels money into high-interest deposits at Canada’s big banks, yielding a better rate than a typical retail saver due to scale. The unit price declined by $0.05, and monthly distributions totaled $0.5072 per unit. The payout dip reflects lower interest rates in the period.
- BMO S&P/TSX Banks Equal Weight Index ETF (ZEB-T). Focused on Canada’s Big Six banks, this ETF benefited from strong banking stock performance, posting a notable gain of $12.34 per unit and monthly distributions of $0.872.
- iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (XMS-T). This fund emphasizes low-volatility US equities. It rose modestly by $0.24 in the latest period, with quarterly distributions of $0.21 per unit.
- BMO Low Volatility Canadian Equity ETF (ZLB-T). It targets large-cap Canadian stocks with a history of low beta and is up $3.26 since the last review, with two quarterly distributions totaling $0.57.
- BMO Low Volatility International Equity Hedged to Canadian Dollar ETF (ZLD-T). This international equity fund is hedged to CAD, reducing currency risk, and it gained $0.60 in the latest period with distributions totaling $0.34 per unit.
- Brookfield Corp. (BN-T). Brookfield operates across real estate, asset management, renewables, infrastructure, and insurance. A 3-for-2 stock split in October increased our holding to 300 shares. Distributions totaled $0.166 over two quarters, and the company recently announced a dividend increase to $0.07 per quarter.
- Enbridge Inc. (ENB-T). Enbridge offers a solid yield (around 5.4%) with potential for modest capital gains. The stock rose by $3.28 since the prior review, and the quarterly dividend stood at $0.9425.
- Fortis Inc. (FTS-T). Interest-sensitive names showed modest gains; Fortis was up by $3.31, and due to timing we received one dividend of $0.64.
- Manulife Financial Corp. (MFC-T). Added about a year ago and performing well, Manulife advanced by $9.66 in the latest period, with a single dividend totaling $0.44 per share.
Cash and cash equivalents: a balance of $3,061.22, moved to Tangerine Bank under a promotional 4.5% for five months on new accounts. Interest earned totaled $57.40.
Portfolio snapshot as of Feb. 11 (excluding commissions): the overall six-month period showed a 7.4% gain with every security except XSTP in profit. The standout performers were Manulife and the BMO Banks ETF.
Over the 14-year span since launch, the portfolio delivered a total return of 250.6%, equating to an average annual growth rate of 9.37%, well ahead of the target.
Portfolio adjustments: while the current mix offers strong upside and notable downside protection via XSTP and CSAV, those two components have yielded limited gains recently. I plan to replace XSTP with the iShares Core Canadian Corporate Bond Index ETF (XCB-T) to seek a better return with minimal added risk. The sale would realize about $6,180.37 for XSTP, and the purchase would be 300 units of XCB at $20.40 for $6,120, with the $60.37 difference added to cash.
Additionally, I’ll buy 10 more Fortis shares for $739.90, lifting the count to 80. Financing comes from $682.89 of retained earnings and an extra $57.01 drawn from cash. The revised cash balance, including retained income, would be $2,852.74, which I’ll move to Kawartha Credit Union High Interest eSavings Account at 2.25% for RRSPs.
Final snapshot: the updated portfolio will be reviewed again in August.
Gordon Pape serves as editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
