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Gordon Pape: This RRIF portfolio has returned almost 7% annually Add to ...

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This RRIF model portfolio was launched in February 2013 with an initial value of $49.910.30. Its goals are to protect capital and to provide higher cash flow than investors could get from conservative securities like bonds and GICs.

At the time the portfolio was created, I commented that during a period of near-zero interest rates, it was impossible to set up a low-risk RRIF that would produce enough income to meet Ottawa’s minimum withdrawal requirements. The former Conservative government reduced those minimums last year, dropping the rate for a 71-year-old from 7.38 per cent to 5.28 per cent. That’s still on the high side but potentially more attainable with careful management.

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Comments: The RRIF Portfolio suffered a small loss of 1.5 per cent during the latest six-month period. We never want to see losses, of course, but compared to the overall performance of the market the portfolio held up quite well.

This marks the third anniversary of the launch of this portfolio and to date we have an average annual compound rate of return of 6.81 per cent. That’s more than the new minimum withdrawal requirement for a 71-year-old and substantially more than you’d get from a GIC. By comparison, the average annual three-year return on a Canadian neutral balance fund to Jan. 31 was 5.33 per cent.

Changes: Our three-year GIC has matured so we have $13,418.75 (principal and accrued interest) to reinvest. MAXA Financial is offering 2.5 per cent on a five-year term and their GIC has two big advantages over most others. First, it’s redeemable so if rates rise we can cash in and trade up. Second, it makes annual payments. We will therefore reinvest with them. Maturity will be in February 2021, unless it becomes advantageous to cash in sooner.

I debated selling the Signature Dividend Fund but the preferred share market has started to firm up so we’ll hold on for another cycle. We’ll use the retained distributions plus $4.54 from cash to buy another 25 units, bringing the total to 440.

Here are some additional new purchases.

PMO005. We’ll add 15 units for a cost of $205.50 to increase the total to 420. That will use all of the retained earnings plus another $3.26 from cash.

BCE. We will buy five shares for a cost of $295.30. That will give us 125 shares and reduce the retained earnings to $38.21.

IPL. We are adding 10 shares for a cost of $234.30. That leaves retained earnings of just 78 cents.

BIP.UN. We have enough money to buy five units for a cost of $242.50. We now have 140 units and retained earnings of $43.70.

Remember that with stocks, I do not recommend buying small quantities because of the commissions. Use dividend reinvestment plans if they are available.

The cash of $491.31 will be kept in the laughingly called high interest savings account at 0.8 per cent.

I’ll review the portfolio again next August.

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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. Follow him on twitter @GPUpdates and on Facebook.

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