Don’t Strip Your RRIF

Strip bonds have been popular with RRSP investors for many years, because they offer the opportunity to lock in interest rates for the long term. As a result, you may have some strips in your RRSP when the time comes to convert it to a RRIF.

There is nothing wrong with this, assuming the strips will mature within a reasonable period of time. However, we do not recommend adding any new strips to a RRIF.

The reason is simple. At this stage, income-generation becomes one of your prime goals. Strips do not generate any income. They are passive investments that do nothing for you until they mature. Few RRIF investors can afford to allow a portion of their plan to lie fallow in this way. As existing strips mature, cash them in and re-deploy the money.

Adapted from Gordon Pape’s 2001 Buyer’s Guide to RRIFs and LIFs, published by Prentice Hall Canada. Order a copy of this book.