Do you have too much invested in fixed income?

November 14, 2017 | Ryan Son Kee


I see some big issues with how Canadians have their investment portfolios allocated. Do you incorporate CPP/OAS and your pension (if you have one), as part of your fixed income portfolio? If not, you should be!

CPP/OAS and pensions are all fixed payments that you receive monthly and are guaranteed. This is the definition of fixed income. These amounts must be incorporated into your investment decisions and how you allocate your assets. What I’ve seen is most Canadians are over conservative in the allocation of their investment portfolios.

Let’s look at an example. A client wants to be medium risk on his/her portfolio and preparing for retirement. Medium risk and medium growth. Most often a balanced portfolio of 60% Equity and 40% Fixed Income will be recommended. Seems ok on the surface. Assuming a portfolio of $1,000,000, this would be $600,000 in equities and $400,000 in fixed income. Since we have established that CPP/OAS and pensions should be considered fixed income, let’s now incorporate them into your total asset allocation.  Let’s assume based on some actuarial assumptions that your CPP/OAS is worth $100,000 in today’s dollars and your pension is worth $300,000. Now your allocation would be:

Equities                    $600,000

Fixed Income           $800,000 ($400,000 Fixed Income + CPP/OAS $100,000 + Pension $300,000)

Total Portfolio        $1,400,000


This ends up being an allocation of 43% Equity and 67% Fixed Income. This is not the correct asset allocation based on your risk profile and is too conservative.

If incorporating CPP/OAS and pensions into your overall asset allocation, your new allocation should be:

Equities                    $840,000

Fixed Income           $560,000 ($160,000 Fixed Income + CPP/OAS $100,000 + Pension $300,000)

Total Portfolio        $1,400,000


This allocation would give you the correct 60% Equity/40% Fixed Income that fits your risk profile and risk tolerance. I see many Canadian’s whose portfolios are setup incorrectly and do not consider the entire household’s situation.

Asset allocation is the most important investment decision that you need to get correct. 90% of your investment returns come from the asset allocation decision. How much equities vs fixed income?  How much Canadian exposure vs US exposure vs International exposure? Thinking about your overall portfolio and the correct asset allocation based on your risk profile and your risk tolerance will help you build the correct retirement strategies. The above example is a simplified scenario that does not take into account: insurance, rental properties, your spouse’s investments and total household asset allocation.


The second question is why do we invest in fixed income?

Most high-net worth families in Canada want stable growth and protection of their assets. Therefore, they have a significant portion of their assets in safe assets.

Here’s an example of a discussion I often have when meeting clients for the first time:

Ryan: How much do you have invested in safe assets?

Client: Approximately 40%

Ryan: Ok great and how is it invested?

Client: It’s invested in fixed income: cash, t-bills, GICs, government bonds, corporate bonds, REITs,

Ryan: And what are your average returns on these assets? Would they look something like this:

Client: yes that looks about right

Ryan: Now let’s chop these in half, because income is taxed at the highest marginal tax rate. So, your after-tax return would look something like this:

Client: wow, that does not look good after-taxes.

Ryan: No, but there are reasons why they are in your portfolio.  1 safety/capital preservation; 2 diversification; 3 access/liquidity/maintain collateral capacity

What if I told you there is another asset class, an alternate asset class that provides more diversification away from fixed income and covers all 3 items. It’s something many of the other High Net-Worth families in North America are using to deploy a portion of their estate-bound assets into tax-efficient, tax sheltered insurance contracts, specifically whole-life participating policies.

Some additional features of these insurance contracts:

-Tax-sheltered growth

-Tax-free Guaranteed payouts on death

-Guaranteed Protection

-investment returns on premium that is paid/invested (approx 3-7%)

-Borrow against cash values

-Walk away cash values if client decides to stop coverage

At one time, life insurance was viewed as a pure protection instrument, the sole purpose of which was to provide funds at a particular point in time to satisfy certain liquidity needs that may arise upon death. Today, when used properly, insurance can help to enhance your family’s overall planning strategy and diversify away from fixed income while providing an alternative asset class to add to the portfolio with similar fixed income properties.


As Canadians prepare for retirement their financial situations increase in complexity.  Making sure you are planning correctly and making good decisions will go help go a long way to ensuring your retire comfortably.  If you would like to know more about retirement/estate planning, building stock portfolios for HNW families or using insurance as an alternative asset class or if have any other questions, please do not hesitate to contact me at or 416-842-1120