Bonds and Your RRSP

Article Excerpt

A question investors often ask at this time of year is “What role should bonds play in my RRSP?” If you’re going to hold bonds, an RRSP is a good place for them.  That’s because bond interest lacks any tax advantages, unlike dividends from Canadian companies, which carry the dividend tax credit. Bonds usually have fixed maturity dates as well, so you can’t defer capital gains indefinitely, as you can with stocks. But the bigger question is this: should you hold any bonds at all? Holding a mix of bonds and stocks will reduce the volatility of your portfolio over long periods. But it will also cut the long-term return on your portfolio, especially with bond yields as low as they are today. Look at rates, not rules Many investors assume they should apply one of the various age-based rules-of-thumb to tell you what proportion of your portfolio should be in bonds. But a bond-buying rule that fails to take current interest rates into…

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