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It’s time for our midyear look at how our model RRIF portfolio is doing.

This portfolio differs from an RRSP in two fundamental ways. First, it is lower risk. Investors who have registered retirement income funds are in their retirement years, and preservation of capital becomes more important as a result. There may not be time to recover from a major loss. Yes, this is a conservative approach in today’s markets, but the reality is that a major stock market crash would make life very difficult for those who rely on their RRIFs for income.

Second, the portfolio should generate income to provide cash for the annual withdrawals. That means focusing on securities with good yields as opposed to those that depend on capital gains for investor returns.

After some major changes last August, the RRIF portfolio rebounded with a gain of 7.64 per cent in the latest six-month period. As of Aug. 20, the total value (market price plus retained earnings) was $87,660.65 compared with $81,441.12 in February.

Since inception 8½ years ago, we now have a cumulative total return of 75.6 per cent. That works out to an average annual compounded rate of return of 6.85 per cent. Our target is in the 5-per-cent to 6-per-cent range, given that much of the portfolio is invested in bonds and preferred shares to limit downside risk. At this point, we are running ahead of that goal.

Our RRIF portfolio was created for my Income Investor newsletter in February, 2013, with an initial value of $49,910.30. Here are the current positions with a commentary on how they have fared since the last review in February.

iShares Core Balanced ETF Portfolio (XBAL-T). Last February we bought 200 units of this exchange-traded fund at $26.10, for a cost of $5,220. This is a fund of funds, investing in eight basic iShares funds, with a mix of about 60 per cent stocks, 40 per cent bonds. So far, it has performed well. The units are up 5.7 per cent since our purchase, and we received two quarterly distributions totalling 26.10 cents a unit.

iShares Core Canadian Universe Bond Index ETF (XBB-T). This bond fund seeks to replicate the performance of the broad Canadian bond market, including both government and corporate issues. In a bad market for bonds, the units held up well, losing only five cents in the latest period. That was more than offset by six monthly distributions totalling 41 cents a unit.

iShares Core U.S. Aggregate Bond ETF (AGG-A). This is similar in concept to XBB except that it tracks the performance of the broad U.S. bond market. Surprisingly, the units have gained 32 US cents since the last review – not a lot, but any profit is welcome in this bond market. Plus, we received six monthly distributions for a total of US$1.025.

Brompton Flaherty & Crumrine Investment Grade Preferred ETF (BPRF-T). This fund invests in U.S. preferred shares and is run by a team of top experts in this area. We added it in February, and the units are up about 2 per cent in the six months since. The real attraction is the monthly distribution of 10.4 cents a unit ($1.248 a year), which provides excellent cash flow.

Royal Bank of Canada Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO (RY.PR.S-T). This preferred was added one year ago and has performed amazingly well, with a one-year total return of 30 per cent. It pays a quarterly dividend of 30 cents.

Granite Real Estate Investment Trust (GRT.UN-T). This REIT was spun out of Magna International Inc. in 2011 to take over the properties on which the company’s plants are built. It has since diversified its holdings and operates internationally. It was added to the portfolio last August but got off to a weak start. However, it turned around in the latest six months, gaining 18.3 per cent. We received distributions of $1.50 a unit.

BCE Inc. (BCE-T). BCE shares rebounded strongly, gaining 18.4 per cent in the latest period. We received two dividends of 87.5 cents each.

Pembina Pipeline Corp. (PPL-T). Pembina continued its rally, gaining 12 per cent in the latest six-month period. The company kept its promise of maintaining the monthly dividend of 21 cents. We received six payments totalling $1.26 a share in the latest period.

Brookfield Infrastructure LP (BIP.UN-T). This limited partnership invests in infrastructure projects around the world. It continues to perform well for us, gaining 6.4 per cent in the past period. We received two distributions of 51 US cents each.

Firm Capital Mortgage Investment Corp. (FC-T). We added Firm Capital in February. This company has been a recommendation of my newsletter since 2004 and has been a dependable performer. The shares are up 9.5 per cent since we added Firm to the portfolio and pay a monthly dividend of 7.8 cents (93.6 cents a year), with a year-end top-up in December.

iShares S&P/TSX Capped Utilities Index ETF (XUT-T). This ETF invests in a portfolio of utilities stocks traded on the TSX. It was up 5.3 per cent in the latest period, and we received distributions totalling 45.1 cents a unit.

Innergex Renewable Energy Inc. (INE-T). We added this renewable energy stock last August at $22.59. It started off well but took a big hit in the latest period, losing 22.7 per cent. It looks oversold at this price. The stock pays a quarterly dividend of 18 cents (72 cents a year).

Cash. We moved the cash balance of $2,303.02 to Outlook Financial, which was paying 1.2 per cent on a RRIF-eligible account. We earned $13.82.

Changes: We will use retained earnings to add to these positions.

BCE – We will add 10 shares at $65.11 for a total outlay of $651.10. That will bring our total to 160 shares and reduce retained earnings to $136.91.

FC – We’ll buy another 10 shares for $15.06, for a total payout of $150.60. That will give us 460 shares, with $60 remaining in retained income.

XUT – We will add 10 units at a total cost of $311. That gives us 170 in total and leaves $42.92 in cash.

We now have $2,818.05 in cash and retained earnings. We will move that money to EQ Bank’s retirement account, which is paying 1.25 per cent.

Full disclosure: The author personally owns shares in BIP.UN and BCE.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

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