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Private Investments and Your RRSP

By Bob Carter

The art and science of building your financial plan depend on facts, advice, and having the conviction to make hard decisions. You also need the benefit of insight to perceive market and economic change and courage to make hard decisions in light of these conditions. Given all you have heard about how illiquid private investments are – should you hold them only in non-registered form? Should they be included in your RRSP and or RRIF?

The answer is complex.

Accepting that readers of this article may currently hold, or are considering holding private investments, the question remains: Have you considered your needs for income and exit if you have chosen to include them in a registered plan?

Your Investment Plan:

Basic investing tenets suggest investors and their advisors build portfolios that hold a diversified collection of different asset classes. Cash and near-term liquid investments will ensure safety and availability of capital to take advantage of buying opportunities. Intermediate and long-term fixed income bonds provide income and possible capital gains as interest rates decline. Equities are included to provide dividends and total return growth. There is no one recipe: your specific asset mix or allocation reflects your age, investment goals, and personal tolerance for risk.

Many investors today have grown wary of being concentrated only in conventional market securities and are now looking to private investments for seeking better returns and an alternative to the status quo. Although private investments can enhance a registered portfolio, loading up on them without consideration of diversification and care in their selection invites potential disaster.


A strong performance history coupled with the allure of tax-deferred growth provide the motivation to hold private equity and fixed income investments inside RRSP accounts. The fit seems obvious, but you must take care to use sound portfolio management techniques adapted to these are non-traditional securities.

In a conventional registered account, you can buy or sell investments to meet demands for income. You can also take advantage of changing market conditions. That may not be the case with exempt or private equities. While many private equity issuers are offering enhanced liquidity options than ever before, they still have no formal secondary market, and any liquidity provisions may be limited, or subject to cost. This requires you take extra care to select only those investments you are willing to hold until maturity, realizing the risk that the potential outcomes are by no means certain.


The structure of your portfolio must also consider the need for income in retirement. This means ensuring a predetermined amount of cash is available to meet the government-mandated minimum withdrawal amount is paid. One possible technique would be to build a portfolio of investments with expected completion dates that mature to a set schedule using a laddering technique traditionally used with GICs and bonds.

Bond ladders are portfolios that have equally allocated dollar amounts are held in five to ten-year schedules. For example – a bond ladder with a five-year schedule would see 20% of the allocated amount invested into a one, two, three, four and five-year security. Every year one bond matures, and the strategy requires the purchase of an additional bond at the end of the schedule; in effect – a new five-year holding.

This structure removes some of the guesswork behind what an investor should buy by eliminating much of the market's interest rate risk, exposing you to market volatility for only a 20% position. Extending the strategy to ten years allocates 10% portions in a similar structure.

Such a laddered structure can be applied to your holdings of private equities where equal amounts (or as close as possible) are invested in projects maturing each year over a five to ten-year intervals. This structure is far from perfect as delays happen in private investing.

You must recognize that even the best of plans may be challenged if projects fail to meet their exit dates. If this happens, investors must take care to hold back enough cash to meet their annual income distribution requirements before reinvesting any remaining capital.


Private equity investments are not risk-free. Funds contributed to registered savings accounts are subject to risk, possibly greater risk of loss than many other conventional securities and are not for the faint-of-heart. Investors must remember that catastrophic loss in registered accounts offer no financial buffers such as capital loss tax treatment and can only be made up by depositing new funds, which may or may not be available depending on their available contribution room, financial situation, and time horizons.

Depending on the investor circumstances, it may make sense for investors nearing the common conversion age from RRSP to RRIF to reduce their position in long-dated private equities. If possible, older investors should shorten the duration profile of their holdings to provide the required income according to a liquid schedule.

Plan, ahead. Be flexible and expect challenges.

Finally – it might make sense to incorporate traditional investment securities (stocks, bonds, ETFs and mutual funds) alongside private equities in the same account in order to provide an additional buffer, income source, and liquidity to meet your diversification and income requirements.

The allure of potentially higher private investment returns in registered savings and income accounts is unmistakable. Investors need to take care to structure registered accounts with the end in mind and not simply ‘load up' on too much of a good thing.

"The allure of potentially higher private investment returns in registered savings and income accounts is unmistakable. Investors need to take care to structure registered accounts with the end in mind and not simply ‘load up' on too much of a good thing."

Bob Carter has over 30 years of sales, management and business ownership experience. Bob is currently Regional Vice President of Sales with one of Canada’s leading life insurance companies. Prior to that, Bob spent 10 successful years as a licensed stockbroker, financial planner and licensed life insurance rep with a major Canadian securities firm. Bob holds several professional designations including, Group Benefits Associate (GBA), and Certified Investment Manager (CIM). Bob is a recognized speaker, published author and contributing editor to Canadian MoneySaver Magazine and Benefits Canada online and can be contacted at