RRSPs and RRIFs are intended to provide retirement income. But the strategies are quite different

I’ve heard people say that a RRIF is simply an extension of an RRSP. Not true!

The two plans are linked in that both are designed for retirement savings. But their goals are different, which means the strategies involved must be too.

The purpose of an RRSP is to build a tax-sheltered cash reserve that will form part, or even all, of your retirement capital. This requires careful management of the risk/reward balance in the portfolio. A GIC-based plan will preserve your capital, but it won’t generate much return.

Using GICs or other cash-based securities as part of a RRIF makes sense, however. Now the goal is cash flow, to cover the annual withdrawals, and preservation of capital. Growth is no longer the major concern.

This means RRIFs need a different investment strategy. You need to protect your capital while generating enough cash to supplement any other sources of income you have. At times, that can lead to a difficult juggling act.

My model RRIF portfolio was created for my Income Investor newsletter in February 2013 with an initial value of $49,910.30. We now have 13 years of experience, and the performance is about what we originally expected.

The original objective was to provide a better return than you could get from a five-year GIC. According to ratehub.ca, the best five-year rate for a registered plan at this time is 4 per cent from Ganaraska Financial Credit Union. This portfolio has consistently done better.

Here are the current positions in our portfolio with a commentary on how they have fared since the last review in August. Prices are as of the afternoon of March 20.

CI High Interest Savings ETF (CSAV-T). This low-risk ETF holds high-interest deposit accounts in Canada’s major banks. Returns are low but dependable. We received six monthly distributions for a total of $0.648 per unit. If interest rates rise as a result of the Iran war, so will the cash flow from CSAV.

iShares Core Balanced ETF Portfolio (XBAL-T). This is a fund of funds that invests in eight basic iShares ETFs. The current mix is 60.28 per cent stocks, 39.72 per cent bonds/cash. The units posted a gain of $0.59 in the latest period. We received two quarterly distributions totaling $0.358 per unit.

Royal Bank of Canada Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO (RY-PR.S-T). This preferred was reset in 2024. The quarterly dividend was raised to $0.3678 ($1.4712 a year). We received two quarterly dividends, but the shares lost $0.27 in the latest period.

Power Corporation of Canada (POW-T). We added 100 shares of POW to the portfolio a year ago, at $47.82 a share. It turned out to be a timely move as the stock is up more than $17 a share since. During the latest period, we received two dividends for a total of $1.226 a share. The company announced that the dividend will increase by 9 per cent effective with the next payment.

Telus Corp. (T- T). Telecoms are a sinkhole these days. After a bad run with BCE, we added Telus to the portfolio. It hasn’t done well, losing $4.95 in the latest period. The quarterly dividend provides solid cash flow, but we’re giving the money back as the share price sinks.

Pembina Pipeline Corp. (PPL-T). Pembina shares gained an impressive $9.13 in the latest period. Due to timing, we received three quarterly dividends of $0.71 each.

Brookfield Infrastructure LP (BIP-UN-T). This limited partnership invests in infrastructure projects around the world. The units were up $7.66 in the latest period. We received three distributions totaling about $1.80 per unit.

Firm Capital Mortgage Investment Corp. (FC-T). The price of this mortgage investment corporation fell by $0.55 a share as interest rates rose on worries that the Iran war could spark global inflation. We continue to collect a steady monthly dividend of $0.078. The yield is 8.1 per cent at the current price. That looks attractive, but if the war goes on for much longer, rates are likely to rise more, putting downward pressure on the share price.

iShares S&P/TSX Capped Utilities Index ETF (XUT-T). This ETF invests in a portfolio of utilities stocks traded on the TSX. The units gained $3.03 in the latest period, aided by low interest rates. We received distributions totaling $0.7076 per unit.

Royal Bank of Canada (RY-T). Bank stocks had a strong run but have pulled back recently. Still, RY’s shares gained $27.58 during the latest period, and we received two dividends for a total of $3.18.

Manulife Financial Corp. (MFC-T). The stock gained $3.98 in the latest period, and we received two quarterly dividends totaling $0.925.

Cash. We had cash and retained earnings of $4,169.94, which we moved to Tangerine Bank. It was offering a special promotion for new accounts, which paid 4.5 per cent for five months. We received $78.19 in interest.

Here’s a look at the RRIF Portfolio as it stood on the afternoon of March 20. Note that commissions are not deducted. Although this is a RRIF portfolio, withdrawals are not factored in, as this would make it impossible to track performance accurately.

Income Investor RRIF Portfolio (a/o March 20/26)

Comments: Most of our securities did well, and any losses were minimal except for Telus, whose share price dropped almost 22 per cent. Power Corporation was the biggest gainer, as the share price jumped 21 per cent. Brookfield Infrastructure Partners gained 18.1 per cent, Pembina Pipeline added 17.3 per cent, and RBC was ahead 14.4 per cent.

As of March 20, the total portfolio (market price plus retained earnings) was valued at $106,288.75 compared with $98,545.74 last August. That’s a seven-month advance of 7.9 per cent. Our annual target is 5 per cent to 6 per cent, so we are well ahead of that pace. Cash flow was $2,268.92, or 2.3 per cent of the total value last August.

Since inception just over 13 years ago, we have a cumulative total gain of 113 per cent. That works out to an average annual compound growth rate of 5.99 per cent.

Changes: We’ve seen the Telus story before with BCE. We’re not going to repeat that. We will sell our Telus position for $18 a share. With retained earnings, we have $4,014.12 to reinvest.

We will invest the money in 70 shares of Quebecor Inc. (QBR.B-T), at a cost of $4,109.70. Quebecor has become a significant second-tier player in the telecommunications business since acquiring Freedom Mobile as part of the Rogers takeover of Shaw Communications. The stock has a dividend yield of 2.73 per cent. We need an extra $95.58 to complete the deal, which we’ll take from cash.

We will also deploy some of our cash reserves as follows.

RY.PR.S – We’ll purchase another 10 shares for $26.18, or a total cost of $261.80. That increases our position to 330 shares and reduces the accumulated cash to $170.25.

BIP.UN – We’ll add 10 units for an expense of $500.70. That increases our position to 170 units and drops the retained earnings to $215.25.

We have cash and retained earnings of $5,424.85, which we will move to Oaken Financial. It is offering 2.8 per cent on a savings account with no transaction fees.

Here is the revised portfolio. I will revisit it in August.

Income Investor RRIF Portfolio (revised March 20/26)

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.