{"id":269,"date":"2014-02-23T10:45:53","date_gmt":"2014-02-23T18:45:53","guid":{"rendered":"https:\/\/mgfadvisory.ca\/news\/?p=269"},"modified":"2018-08-23T10:46:22","modified_gmt":"2018-08-23T17:46:22","slug":"rrsp-season-is-the-time-to-rebalance","status":"publish","type":"post","link":"https:\/\/mgfadvisory.ca\/news\/2014\/02\/23\/rrsp-season-is-the-time-to-rebalance\/","title":{"rendered":"RRSP Season is the time to Rebalance!"},"content":{"rendered":"
\"Rebalance<\/div>\n
\n

 <\/p>\n

It is RRSP season and it is time for our annual determination of how much to contribute.\u00a0 It also becomes a time for us to determine what we should buy in the RRSP.\u00a0 This is a great time to revisit what we need to rebalance within our RRSP as well.<\/p>\n

Portfolio rebalancing is largely about risk management.\u00a0 It is the act of realigning the weightings of one\u2019s portfolio back to a desired or targeted level. \u00a0\u00a0It is required over time as each element of our portfolio can shift in value, both up and down.\u00a0 That may place us in a different portfolio weighting altogether, and expose us to much more risk\/reward than we initially sought.<\/p>\n

For example, let\u2019s assume a person is a \u201cbalanced\u201d investor with 60% Equity and 40% Fixed Income.\u00a0 Two years ago this investor made their initial contribution to an RRSP that matched this targeted allocation.\u00a0 Two year later, we find out that Equities have gone up 20% per year, while Fixed Income has been relatively flat.\u00a0 As result of this growth pattern, the portfolio is now 70% Equity and 30% Fixed Income.<\/p>\n

The investor should be happy as the portfolio has experienced healthy growth.\u00a0 But the new portfolio weighting is more suitable for a \u201cgrowth\u201d investor, whereas the investor was assessed as more \u201cbalanced\u201d.\u00a0 If the portfolio is not rebalanced to a 60% Equity and 40% Fixed Income mix, the investor could face larger downside risk to a market correction than they initially preferred, as more of the portfolio is Equity based.<\/p>\n

Also remember the investor is 2 years older.\u00a0 For some, that may be two years closer to a retirement decision in the near term.\u00a0 Having too much exposure to Equities when you need to start drawing amounts from your RRSP is a dangerous combination.\u00a0 Imagine needing to start supplementing your retirement income with an RRSP over-exposed to Equities during the technology boom\/bust of the early 2000s, or the financial crisis of 2008\/2009!!<\/p>\n

Rebalancing is not just confined to Equity versus Fixed Income.\u00a0 It can also be between sub allocations therein.\u00a0 For Equities, you should consider your geographic (Canada versus US versus International Exposures) and industrial concentrations (financial services versus materials versus information technology versus consumer staples, etc.).\u00a0 Similar consideration should be done with your Fixed Income portfolio where you invest in more than one type of instrument (government debt versus corporate debt versus other higher yielding options).<\/p>\n

Also, don\u2019t forget when you rebalance, you should be considering all of your investments!\u00a0 A look at just the RRSP may not be appropriate when you have investments in your Tax Free Savings Account, or your spouse has their own independent RRSP investment.\u00a0 I believe proper asset allocation and rebalancing can only be done from a family viewpoint, taking into account all investment accounts.<\/p>\n

Finally, remember that rebalancing is emotionally difficult.\u00a0 We are effectively forcing ourselves to sell what has performed well, and buy things that haven\u2019t done as well.\u00a0 This is not to be confused with trying to \u201ctime\u201d the market.\u00a0 We are simply righting the ship back to a preferred weighting for our circumstance.<\/p>\n

So don\u2019t forget to rebalance during this RRSP season!\u00a0<\/strong><\/p>\n

Contact me for a review of your current RRSP at\u00a0marco@mgfadvisory.ca<\/a>\u00a0or\u00a0604-789-3888<\/a><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"  It is RRSP season and it is time for our annual determination of how much to contribute.\u00a0 It also becomes a time for us to determine what we should buy in the RRSP.\u00a0 This is a great time to revisit what we need to rebalance within our RRSP as well. Portfolio rebalancing is largely…

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