There was a time, not long ago, when RRSP season was a big deal in this country.
Newspaper ads and TV commercials would tout the advantages of using x bank, or y mutual funds, or z discount broker to build a plan that would carry you into your retirement years on a golden parachute.
We’re not seeing much of that anymore. I don’t watch many TV commercials (thank you, fast-forward), but when I’m forced to sit through them, I don’t see a lot of talk about RRSPs. I carefully looked at the ads in the two daily papers I receive and did not find one devoted to these plans.
Canadians are still dutifully putting money into RRSPs. According to Statistics Canada, almost 6.3 million people made RRSP contributions in 2022, the last year for which data is available. The total amount contributed was $54.2 billion. That was down slightly from 2021 but still represents a significant amount of savings.
However, it appears that the number of people contributing to these retirement plans is gradually declining. A recent survey by brokerage firm Edward Jones found that fewer people plan to make contributions this year than in 2024. Women and younger people are among the most reluctant. The main reason seems to be inflation – living costs are up, leaving less for saving.
That’s unfortunate, because RRSPs are a very effective way to build long-term wealth. Several years ago, Penguin Canada published my book RRSPs: The Ultimate Wealth Builder. I stand by that title today. Tax-Free Savings Accounts have become more popular but RRSPs offer greater growth potential because of their higher contribution limits.
Any retirement savings program must be based on a well-designed investment plan. I’m sure a lot of RRSP contributions are flowing through the banks and ending up in low-interest GICs and in-house mutual funds of varying quality. The result could be inferior returns.
To help readers looking for guidance on building a stable and profitable retirement plan, I launched the IWB RRSP Portfolio in February 2012. It has two main objectives: to preserve capital and to earn a higher rate of return than you could get from a GIC. The original value was $25,031.92.
The portfolio contains a mix of ETFs and stocks, so readers who wish to replicate it must have a self-directed RRSP with a brokerage firm.
These are the securities we currently hold, with comments on how they have performed since the last review in early September. Results are as of the close of trading on Feb. 19.
iShares 0-5 Years TIPS Bond Index ETF (XSTP-T). This ETF invests in short-term U.S. Government inflation protected notes. They pay a low rate of return, but both the face value and the interest increase as inflation rises. This provides downside portfolio protection. The units are up $2.65 since the last review in September. We received distributions that totaled 35.1 cents per unit. Note that while distributions are monthly, they vary considerably and some months the payout may be zero.
CI High Interest Savings ETF (CSAV-T). We added this high interest ETF at the time of our review in August 2023. It was trading at $50 at that time, and it’s designed not to vary too much from that level. This fund invests in high-interest deposit accounts at Canada’s major banks. It earns a better rate of return than a retail customer can obtain because of its hefty purchasing power. The units are up 3 cents since the last review, and we received monthly distributions totaling $0.76 per unit.
BMO S&P/TSX Banks Equal Weight Index ETF (ZEB-T). This ETF invests in shares of the Big Six Canadian banks. Banking stocks have recovered in recent months and this ETF has benefited, with a gain of $3.37 per unit. Monthly distributions totaled 70 cents.
iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (XMS-T). XMS invests in low-beta U.S. stocks such as Progressive Group, T-Mobile, Motorola, Eli Lilly, and IBM. Low beta means they are less sensitive to broad market movements and, in theory, less risky. The fund posted a gain of $4.02 in the latest period. Quarterly distributions totaled 21.7 cents per unit.
BMO Low Volatility Canadian Equity ETF (ZLB-T). This ETF invests in a portfolio of large-cap Canadian stocks that have a low beta history. It’s up $1.29 since the last review. We received two quarterly distributions for a total of 56 cents.
BMO Low Volatility International Equity Hedged to Canadian Dollar ETF (ZLD-T). This ETF focuses on international stocks and is hedged to Canadian dollars, so the currency risk is removed. It gained 96 cents in the latest period. Distributions totaled 34 cents per unit.
Brookfield Corp. (BN-T). Brookfield operates in a range of business areas including real estate, asset management, renewable resources, infrastructure, and insurance. The stock has made a big recovery over the past year and is up $22.34 since the last review. We received two quarterly dividends of 8 US cents each.
Enbridge Inc. (ENB-T). Enbridge offers an attractive yield (currently 6.3 per cent) and modest capital gains potential. The stock is up $5.57 since the last review and the quarterly dividend has been raised to 94.25 cents.
Fortis Inc. (FTS-T). Interest-sensitive stocks have done much better since the Bank of Canada started to dial back interest rates. Fortis gained $1.38 in the latest period. We received one dividend of 62 cents per share.
BCE Inc. (BCE-T). BCE’s decline accelerated sharply in the latest period, with the shares plunging by more than $15. Investors are concerned about the safety of the dividend, the company’s high debt load, and its surprise expansion into the U.S. The shares yield almost 12 per cent, a clear sign the market expects a dividend cut soon.
Interest. We had a cash balance (including retained income) of $2,706.39. We moved it to EQ Bank which was paying 2.75 per cent on retirement accounts. We received interest totaling $34.11.
Here is how the RRSP Portfolio stood as of Feb. 19. Commissions have not been factored in. All amounts are in Canadian dollars.
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Comments: Every security in the portfolio showed a profit in the latest period except for BCE (yet again). Overall, the portfolio was up 9.2 per cent, thanks mainly to the aggressive easing policy of the Bank of Canada, which benefitted interest-sensitive stocks like pipelines, utilities, and banks.
Over the 13 years since the portfolio was launched, we have a total return of 205.8 per cent. That’s an average annual growth rate of 8.98 per cent, well ahead of our target.
Changes: We held on to BCE for too long. Fortunately, it was only a small percentage of the portfolio. We will sell our position, which is worth a total of $2,827.07, including retained earnings.
We’ll use the money to buy 70 shares of Manulife Financial Corp. (MFC-T). It closed on Feb. 19 at $42.32 so our book value is $2,962.40. We’ll take the balance owing of $135.33 from cash.
Manulife is Canada’s largest life and health insurance company and has international operations, especially in the U.S. and Asia. The company is raising its quarterly dividend by 10 per cent to 44 cents ($1.76 a year) to yield 4.2 per cent. The dividend is well covered by earnings.
We will keep our retained earnings in cash for now. I believe this is prudent in light of the uncertainty overhanging our future trade relationship with the U.S. and the potential damage a trade war would inflict on our economy.
The new cash balance (including retained income) is $2,946.12. We will keep it at EQ Bank which is paying 2 per cent on retirement accounts.
Here is the revised portfolio. I’ll review it again in August.
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Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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