Gordon Pape answers a series of questions from a reader who lost thousands during the last recession and is concerned about it happening again.

Q - I am 67 years old and retired in May. I have approximately $250,000 in Royal Bank RRSPs. (my spouse has $60,000). Based on your recent comments about a readjustment of the market I have concerns about maintaining what I have. During the last recession I took a bath and lost thousands, which took some time to make up. I don't believe that I have the luxury of time now.

Can you please indulge me and answer these questions?

1. Can I assume that the Royal has RRSP investments that are not directly related to market performance? My investments are labeled "conservative" but still linked (I believe) to the stock market.

2. Is there any way of obtaining bonds or GICs in an RRSP? Should I transfer my RRSPs (and that of my spouse) into something more stable (e.g. bonds). I would like to keep them under the RRSP umbrella.

3. Would there be any obstacles to reverse this investment action should I decide I want to go back into a market driven investment?

4. Would you suggest that I do this now or will this be a short-term adjustment?

Thanks in advance for your kind consideration of these questions. – John R.

A – For starters, you need to clarify what type of RRSPs you have. Since you are with a bank but have stock market exposure I assume you are invested in mutual funds. You may also be able to hold GICs in the same plan but check with the bank.

Given what you want to achieve, you would be best served with self-directed RRSPs, which allow you to invest in any type of eligible security. However, this may require moving your RRSP assets to a brokerage firm.

If you want to stay with the bank, make sure your RRSP can hold both mutual funds and GICs. You could then reduce your risk by shifting some of your assets to a GIC and into bond mutual funds. RBC has several bond funds available. With a self-directed plan, you would also be able to consider bond ETFs.

The key is to decide on your desired asset allocation at this stage. Given your age and your concern about a market decline, you should probably have no more than 50 per cent of your assets exposed to equities, with the rest in GICs and bond funds. You could change direction at any time you wish. Talk to a bank advisor about the best funds for your situation.

As for your fourth question, I don't try to time the markets. It's a fool's game. You need to make a long-term decision about the extent of risk you are willing to take (and the amount of profit potential you are willing to forego) and then take steps to implement it. – G.P.

 

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