In that case, the bulk of your mutual funds should continue to be held in your non-registered portfolio. The reason is simple: tax laws. Only 50% of your capital gains will be taxed, compared to the full amount if they are made within a registered plan (all RRSP/RRIF withdrawals are taxed at your marginal rate regardless of the original source of the income). As well, any capital losses that you sustain can be deducted from your capital gains in a non-registered account. There is no relief for losses within an RRSP.

Of course, you are giving up the tax deduction you would receive for your RRSP contributions if you take this course. So you’d better be sure that your investments generate enough gains to compensate for that. – G.P.

Question: Do you know of bank or investment brokerage firm to which I can transfer my RRSP that will allow me to buy any mutual fund of my choice? – R.P.

A true self-directed plan may have a few limits on the funds you can buy, but not many. If you do have to go elsewhere, TD Waterhouse offers a wide selection of funds. But before you open another account and go through the transfer process, make sure the specific funds you want will be available. – G.P.

You’ll find more on this subject in my new book, Get Control of Your Money. To order a copy at a 25% discount, go to Click Here - G.P.

Also, I'm in Nunavut and from what I have discovered there are limited labour-sponsored funds we can get here. So far I have found Canadian Medical Discoveries, Canadian Science & Technology Growth, and Trimax Growth - 15% federal credit only. What your opinion on them and any alternatives? – D.F.

In the January issue of my Mutual Funds Update newsletter, we have updated our entire Recommended List. In the small-to-mid cap category, we have given Strong Buy ratings to Ethical Special Equity Fund and Saxon Small Cap Fund. The Saxon fund has more U.S. content (19%), however a minimum investment of $5,000 is required.

All the labour-sponsored funds are reviewed in my 2004 Buyer’s Guide to Mutual Funds. Of the ones you mention, we give a $$ rating (out of four) to Medical Discoveries and Science & Technology. Triax Growth gets only $ and has a very poor record. An alternative you may want to consider is Front Street Energy Growth Fund. We picked it as our top labour fund choice for 2004 in the December issue of Mutual Funds Update.

For information on ordering the Mutual Funds Guide, go to Click Here and for subscribing to Mutual Funds Update, visit Click Here - G.P.

My suggestion is that you look at it from a practical perspective. If you are going to need those U.S. dollars in the near future, keep them rather than going through the cost of another currency exchange. If not, then go ahead with your plan. – G.P. (Jan/04)

However, when he visited us during Christmas he informed me that he took heavy loses in the last couple of years. I was shocked to find out that over the last few years he had moved into a 100% equity position including 15% in science and technology. To say the least, I am disappointed with his financial advisor. How can a person in a situation like this rebalance a portfolio keeping in mind that interest rates are already at very low levels? - W.L.

Going forward, it’s clear the account has to be rebalanced. That has to be done within the context of today’s realities, low interest rates and all. However, there are still opportunities available on the income side of the portfolio and we offer recommendations in every issue of our Income Investor newsletter. You’ll find subscription details at Click Here

Normally for someone of your father’s age I would not recommend that the equity side exceed 40% of the total portfolio. Generally, the focus should be on conservative stocks or mutual funds. Value-oriented equity funds with a history of low volatility would be a logical fit.

The science and technology sector has been strong in the past year and he may have recouped some of those losses. But such a heavy weighting does not appear to be appropriate going forward.

That said, the person in the best position to restructure the portfolio is a competent financial advisor who will take into account your father’s age, income needs, and risk tolerance. If his current brokerage firm can’t offer that, he may want to consider moving the account elsewhere. – G.P. (Jan/04)

So yes, my advice would be to start a program to reduce or pay off the $50,000 principal over the next four years. You may lose the tax deductibility of the interest but you will gain the peace of mind of knowing you have a debt-free portfolio that you can draw against at any time if needed. – G.P. (Jan/04)

The limit is per person. If you are contributing to your spouse’s RRSP, that is considered to be part of your personal contribution and you cannot double your claim to the tax credits in that way. However, if your spouse has her own RRSP (apart from the spousal plan) she could purchase $5,000 worth of labour-sponsored venture capital fund units for it and claim a tax credit on her return (assuming she has taxable income).

You should be aware that I have been advising people to be very cautious about investing in these funds and there are lengthy chapters on the subject in both my 2004 Buyer’s Guide to RRSPs and my 2004 Buyer’s Guide to Mutual Funds. I have also written on the subject in my Mutual Funds Update newsletter.

Many labour funds have very poor track records, and investors have suffered net losses, even taking the tax credits into account. They have not been able to get out of the situation, because of the eight-year hold requirement (if you cash in earlier, you must repay the tax credits).

Canadian Medical Discoveries Fund gets a $$ rating (out of four) in the 2004 Mutual Funds Guide. One key comment from the book: “So far the fund has not lived up to its potential.” If you’re interested, you can buy the book at a 25% discount at Click Here – G.P. (Jan/04)

RRSP substitutions or “swaps” are perfectly legal and you are correct in that you must transfer into the plan either cash or a security of equivalent value at the time this is done. But once the shares are in your non-registered portfolio, they have a new book value, which is the market value at the time of the transfer. Essentially, CCRA treats the transaction as a sale and new purchase. Since the “sale” took place within the RRSP, there is no tax relief for any losses. Of course, if the shares decline in value after they are transferred out you can claim a capital loss for that amount. But presumably you don’t expect them to drop more or you would not keep holding them.

There is a full chapter on this strategy in my 2004 Buyer’s Guide to RRSPs. You can order a copy at 25% off the suggested retail price at Click Here – G.P. (Jan/04)