I have given up ranting about how the whole concept of “RRSP Season” is idiotic (you should be putting money in your RRSPs (if that is how you want to save) all year long, not just in February), so if we assume that you still might want to put money into your RRSP now, maybe now is the best time to do a Rebalance of your Couch Potato RRSP Portfolio?
Wait a minute, if you have a Couch Potato Portfolio, aren’t you supposed to leave it alone once your money is in there? Yes and No, is the short answer to that question. When you first put your money into your portfolio, you make a decision about how you want your money to be allocated in the portfolio. There are many great examples of portfolios, but let’s go with a basic one:
Canadian Equities 25%
US Equities 25%
International Equities 25%
Canadian Bonds 15%
Let us not get hung up on how the portfolio is set up initially. However, given a year has now passed since you set up your RRSP Portfolio (since this is RRSP Rebalancing season), we have a look at the portfolio and are shocked to see the following percentages of our total portfolio:
Canadian Equities 15%
US Equities 35%
International Equities 33%
Canadian Bonds 10%
Now that is an out-of-balance portfolio. As with Karate (in the words of Mr. Miyagi), in investing, Balance is everything, so here is a portfolio in dire need of rebalancing. What do I mean by rebalancing? Simply get your portfolio back to being close to your initial allocations (when you set it up, see the first list).
- Cash out all of the funds, pool the money and restart the portfolio with our initial allocations. This is drastic, and fraught with costs, not a good way to find balance.
- Sell off enough of the US Equities and International Equities funds and spread the funds between the remaining members of the portfolio to find balance. This works well, and the Canadian Capitalist has an excellent spreadsheet on how to to help you do that. This way you find balance.
- Bring in external money and rebalance using that, and hence the thematic premise, of Rebalancing Season! If you have extra money to put into your portfolio, take advantage of this and rebalance your portfolio, without having to do too many sell orders! Balance is restored.
Remember, in Investing, always try to find Balance ⚖. It is the key to a tranquil investing life. Enjoy the festive RRSP Rebalancing Season.
RRSP season idiotic? Yes and no. While I don’t like the RRSP (probably why I am commenting it gets my blood boiling well not really haha) I agree with you that if you want to save using that tax vehicle, you should do it year-round.
I’ll skip the reasons why the government loves the RRSP and focus on why there is an RRSP season:
– Banks (now less than before) loves the high-pressure sales pitch so we could put our money with them in mutual funds where the bank will do a lot of churn and high fees.
– it’s not about retirement, it’s strictly to get that tax refund.
Both are related, it’s a lot easier to do the high-pressure sales pitch when there is a deadline looming. With the deadline looming a lot of people, who are only focused on getting the tax refund, will not really care where their money goes.
It’s all about getting a cheque sometime in April. Once you understand those two things, you understand why as idiotic as it is, there is an RRSP season and it is there to stay.
The TFSA really annihilated any reason to continue with the RRSP. But just like the HBP was supposed to be temporary, it’s difficult to get rid of the RRSP.
Hopefully more and more Canadians will use the TFSA only and if they have more money there’s always a non-registered account.
And if the government really cared about making sure we all had enough money for our golden years there’s an easy and efficient way… improve the CPP.
I am concerned about the number of Canadians who can’t even spell TFSA (no it is not TSFA). Will December soon become TFSA month!?!? 🙂
I totally agree with you, spelling but also how to use it. No it’s not a savings account!!!!!
Looking forward actually to December as a TFSA season, not that we should not contribute year round but at least it would improve the situation. Spelling first, year round second