Seeking to rebalance RRSP portfolio

Q – My RRSP fund portfolio is heavily weighted towards Canadian equities. I have a significant amount of money coming into my portfolio from my old pension fund and feel I should take this opportunity to create a more balanced portfolio as you have recommended in your books.

I’m not trying to time the market, but there appears to be a general consensus that interest rates will go up in the spring. I am hesitant to get into income funds at this time and immediately lose value. Is my concern valid and, if so, could you suggest a strategy for creating a balanced portfolio at this particular point in the market cycle? Also, what percentage of equities would be small cap in your model portfolio? – C.S.

A – One thing I have learned over the years is never to trust a “general consensus”. There was a general consensus at this time last year that rates would rise and look what happened. The Bank of Canada made three small hikes and then abandoned what was clearly a premature move. The U.S. Federal Reserve Board actually cut rates.

A rise in interest rates this year is predicated on a strengthening economy. So far, e indicators have been tentative at best.

If you want to reduce the risk on the income side of the portfolio, the best course is to overweight towards short-term securities. Your return will be lower, but the safety element will be enhanced. Short-term bond funds and mortgage funds are good examples.

As far as small-cap stocks are concerned, I don’t recommend them for registered plans because of the higher volatility they bring to the table. An all-cap mutual fund will provide some exposure to that end of the market if you are interested. – G.P.