Equity investments vs. fixed income within your retirement plan - Fiscal Agents Money Management Newsletter

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The Companion Advisor: Fixed Income
Equity investments vs. fixed income within your retirement plan
What was your choice this season – an afterthought?

A Companion Advisor Article

Bringing a well diversified, sufficiently mixed portfolio that reflects your risk tolerance full circle, requires some simple yet effective tax smart strategies. For example, and depending on your age, you may want to review which types of investments you hold inside your RRSP and especially a RRIF.

It is common for investors to hold equity investments within their RRSP or RRIF. However, many investors may not realize that by dividing their holdings between non-registered and registered portfolios, they may actually reduce their taxes.

Interest bearing investments, such as GICs, are actually best held within an RRSP or RRIF. These investments, when held outside an RRSP or RRIF, are fully taxable at your marginal tax rate. By placing these interest-bearing investments within your RRSP or RRIF, they are able to grow tax-sheltered until they are withdrawn.

Equity investments that earn dividends or capital gains are most tax-efficient when held outside your RRSP or RRIF. The former because of the federal tax credit that is applied because the corporation has already paid tax on its profits and the latter because only 50 per cent of the capital gain is taxed.

"Dividing your portfolio is all the more important because when you start to use your RRSP as a source of income, all holdings are taxed equally, removing any preferential tax treatments related to your individual investments," says Julie Sheen, Vice-President, BMO Term Investments.

For investors in search of growth opportunities within their RRSP there are term options available through market-linked GICs or Principal Protected Notes. These investments offer growth potential based on individual market index performance.

An Investment advisor can help you address your taxation needs when reviewing your investment portfolio. For more information Principal Protected Notes or Market-linked GICs please consult with your Fiscal Agents’ Advisor.

With files from NC and BMO Term Investments.

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