Q – I would like to increase the income component of my investment portfolio. Which mix of funds would you recommend and why? I have a moderate risk tolerance and do not need to withdraw the income for five years. – Doug B., Winnipeg, Manitoba
A – With a moderate risk tolerance, your portfolio is likely to be weighted 60% equity and 40% fixed income. If you are looking to increase income, you can deploy two strategies. First, in the fixed-income component, look to a strategy using fixed-income funds that have a common goal of generating steady income while maintaining safety of principal. This can be achieved by investing in Canadian bond funds (I would recommend only short-term funds, given the current state of the market), high yield bond funds (investment grade only), Canadian mortgage bond funds or Canadian income trust funds. To achieve income though the equity component of your portfolio, look to Canadian dividend equity income funds, and real estate investment trust funds. To keep up with inflation, I would also recommend holding a portion of your portfolio in equity funds that invest primarily in large stable blue-chip companies.
My recommendation is to review your expected investment objectives and lifestyle needs for the point five years from now when you expect to begin withdrawing funds. This will help you to determine how much income you actually need to generate from your portfolio. Once you have done this, you can determine the percentage return you will need and thus create a risk-adjusted portfolio that will meet your income needs. As always, if you are unsure about a strategy or what you actually need, or just want an objective opinion, consult a qualified advisor. – R.T.