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Dale Jackson

Personal Finance Columnist, Payback Time


May is the perfect month for a portfolio spring cleaning – wedged between tax and RRSP season, and the carefree days of summer.

And with equity markets charting new highs, it’s a great opportunity to literally take stock with the help of an advisor or on your own. Here are four areas to review:

1. Performance: Let’s face it – you’re in this to grow your savings. Investments need to go up for you to reach your retirement goals. Look at how your mutual funds, stocks and fixed-income have performed and compare them with their benchmarks. Since broader markets are up, most conventional exchange-traded funds (ETFs) are probably doing well. In most cases, there will be no need for changes but you might want to consider trimming holdings that have gone up. If an investment has performed poorly decide if it requires more patience or needs to be weeded out.      

2. Diversification: The rise in equities and low bond yields have probably knocked your asset mix out of whack to the point where the equity portion of your portfolio has overpowered fixed income. Keep in mind fixed income is intended to cushion the risk from equities. As you get older, and near retirement, fixed income can provide a reliable source of income. Perhaps it’s time to sell some equities and bolster fixed income to a more comfortable level. Also, individual sectors or stocks with big increases could be holding too much sway and should be trimmed and reallocated to areas of your portfolio with more upside opportunity.      

3. Tax efficiency: Rising equities are a good thing but if they are in your registered retirement savings plan (RRSP) you could have a looming tax problem. When the funds are eventually withdrawn in retirement they are fully taxed and that could put them in a high tax bracket or even lead to Old Age Security (OAS) clawbacks. If that’s the case, consider fully utilizing tour tax free savings account (TFSA), which is not taxed when withdrawals are made.

4. Fees: New rules call for more transparency for investment fees, but the fee structure remains a complicated maze, and Canadians continue to pay the highest fees in the developed world. Tally up all the fees you’re paying and consider how they could compound as investments over time. Perhaps your portfolio has grown to the point where you can leave high-costs mutual funds and invest directly in the market.