Pengrowth for a RRIF?

Q – Last year I purchased units in Pengrowth Energy Trust after reading about it in the Internet Wealth Builder. I am very pleased that I purchased this. I was wondering if you could tell me if this trust would be advisable to purchase in a RRIF account. The retiree has about $35,000 to invest and takes approximately $300 pension monthly. She is 71and has another RRIF that she also draws a pension from that is in GICs. – B.S.

A – Pengrowth is a royalty income trust that is involved in the oil and gas sector. That makes it problematic for a RRIF for three reasons:

1) The cash flow is not predictable. It will vary in accordance with gas and oil prices.

2) The market price of the shares can be quite volatile.

3) Some of the income is received on a tax-deferred basis. That advantage is lost inside a RRIF.

However, I am aware that some people are buying royalty trusts like this for RRIFs during these low interest rate times to boost returns. It’s the old trade-off of risk/return. You don’t say what percentage of the RRIF the $35,000 represents, but I certainly wouldn’t overload the plan with is type of security. I recommend your friend talk to a professional financial advisor about structuring a plan that will meet her income needs while not unduly risking her capital. – G.P.