In January each year, clients receive annual performance reports for your accounts at Richardson GMP. The reports show how you have done as a household as well as account by account. You may notice quite a variation in the performance of one account to another, if you have a registered account (such as RRSP, RRIF or TFSA) as compared to a non-registered (or taxable) account. We thought you might be curious as to why there would be difference in performance.

At Jefferson|Steele Wealth management, we manage the vast majority of client accounts as one combined portfolio. If you are a couple with 2 RRSPs, 2 TFSAs, one joint account and one corporate account, we will manage all of these accounts with one overall asset allocation, which is usually guided by the target rate of return determined by your financial plan.

We consider taxes when determining into which account an investment should go. For example, an equity which pays no dividend would be ideal in a non-registered (or taxable) account, but less ideal inside an RRSP. The reason is that if the investment increases in value in the non-registered account, no tax is owing until it is sold and then the gain is taxed at capital gains rates which are ½ of the tax rate charged on interest or employment income. If that same equity was inside a RRSP or RRIF and had the same gain, this would cause the future RRIF payments, which are taxed as income, to increase. As well, this gain would ultimately be taxed as income when the RRIF is ultimately de-registered on death. Another example would be a fixed income fund which pays out interest income each year. If possible, we would put this fund into an RRSP or RRIF. Second choice would be a TFSA and last choice would be a non-registered account.

As a result of this decision making process, clients with a theoretical 50% equity and 50% bond portfolio may have a RRSP or TFSA that is 100% fixed income or a non-registered that is 80%-100% equity. In a year like 2017, where equity markets handily out-performed fixed income markets, this can result in one account materially outperforming another.