Q. After making my last RRSP deposit, I realized that I have now finished paying back my RRSP Home Buyer’s plan withdrawal. What do you recommend that I do with the tax refund? Also I may have too many holdings in my investment portfolio. How many holdings should I have for an RRSP portfolio of approx. $155,000? Michael, Gatineau
A. Assuming you have the available RRSP room for the additional contribution, I’d recommend that you consider applying your tax refund against any debt that you have. Probably best to apply it to higher interest debt first like credit cards and car loans and then possibly against your mortgage.
Now to your second question about diversification. As you are probably aware, it’s very difficult to provide personalized advice of this kind without knowing more about your situation, as there are many factors that come into play.
I will tell you that many of the new clients that we meet invariably have way too many holdings. Perhaps this is a result of the investor and/or advisor chasing market returns and simply adding portfolios or positions that have done well last year. Or it could be the lack of regular portfolio rebalancing.
I recommend that you consult an independent advisor and discuss developing an ideal asset allocation. This will be developed based on your risk tolerance and anticipated returns and will factor in the length of time to retirement, inflation, life expectancy etc.
It would be interesting to then compare this model allocation, to your current holdings.
The next step would be to complete a correlation analysis. This is simply a fancy word for a review of the diversification of your portfolio. The results will probably surprise you. If your portfolio is like most of the ones that we see, it will probably contain a number of Canadian Equity funds that regardless of their name or fund manager, probably contain a lot of the same holdings.
Finally, you’ll want to consider the best way to rebalance your holdings, factoring in any purchase or deferred sales charge commissions and additional scheduled deposits.
This article provides general information and does not constitute financial or other professional advice. Seek independent advice before implementing any of the strategies discussed.
Imran Syed, BA CFP CFSB TEP is an independent, fee only Certified Financial Planner and can be reached at www.feebasedadvisor.ca. Please send any home related, financial planning questions to him by email at homes@ottawacitizen.com
