Do Bonds Belong in an RRSP?
If it reduces the chance that the Bond becomes a “Lost Bond” I think that’s a good reason to include Bonds in an RRSP
A recent blog post (April 24th) caught our interest as posts from the Canadian Couch Potato often do. This particular post was whether or not Bonds should be held within an individual’s RRSP. You can link and read this post here
The post gave a thorough analysis for readers to consider which including a lot of factors like bond interest being fully taxable (versus dividends/capital gains), asset allocation considerations, comparable yields, RRIF withdrawal rules, foreign tax withholding etc.
The post from Dan Bortolotti was a summary of the work that he and & Justin Bender did in their white paper on the subject including their full methodology. Their white paper Asset Location for Taxable Investors can be found here
Again, Dan and Justin’s conclusions were based on a multitude of factors but they concluded that, it would have been preferable to hold bonds in an RRSP during the last decade. Those factors all need to be considered or re-considered going forward. But, I would like to humbly offer another factor going forward for their consideration…the risk of actual physical loss of the Bonds …will keeping the bonds inside an RRSP reduce the risk of them being lost all together ?
Because, the fact is that too many bonds are being lost and ending up unclaimed.
As of last December, the Bank of Canada has $420 Million in Unclaimed/Matured Canada Savings Bonds waiting to be claimed. Earlier this month, I received confirmation that Ontario had $64 Million in Unclaimed/Matured Ontario Savings Bonds as of March 2013, waiting to be claimed.
In both instances, there is no one within the Government looking for those owners. I have volunteered to do so. We will see if they accept my offer because I find it tragically sad that Canadian investors are losing track of their hard-earned financial assets including Bonds. What makes matter worse is that the Unclaimed interest earned by those bonds has most likely been taxed along the way. (Yes, It would be interesting to know if the T5’s reached the bond owner directly or if their returns were reassessed for that interest)
I’m going to make an assumption here that there is a better chance that an individual, a loved one or an executor will have a better chance of finding and locating an RRSP than a Bond certificate that could have very well been lost, destroyed, or misplaced somewhere along the way to it maturing. So…on the basis of that Assumption I think Bonds do belong in an RRSP.