Q&A: Is it time to add bonds to portfolio?

Zoomer | June 1st, 2004

Question: My wife and I invested my RRSP, spousal RRSP, and non-registered account with a financial advisor in 2000. I was 52 at the time and was classified as a conservative investor. My advisor put most of our money in equity mutual funds. Over the course of the next year and a half, our portfolio went down about 40 per cent. I’ve switched most of the funds to others that were recommended by you and other experts. Last year we did quite well and are almost back to where we started in 2000.

Since most of our portfolio consists of equity mutual funds, do you think now would be a good time to diversify it by switching some to bond and income funds? Apparently bonds go down when interest rates go up and I don’t feel interest rates can go down much more. – W.C.

Gordon Pape answers: Based on your question, you are now in your mid-fifties. You ask if you should reduce your equity holdings at this stage. A more pertinent question is whether you should reduce your risk exposure and the answer to that is yes. You are reaching a point in life where the preservation of assets is increasingly important.

However, you need to be careful about your moves at is point. The expectation of higher interest rates to come has driven down the prices of longer-term bond funds and income trusts funds in recent weeks. You may want to add to your cash reserves at this time to position yourself to take advantage of better income opportunities which are likely to appear down the road. 

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