RRSP with 100% common stocks¹

This chart (Sorry. Not on this site yet) plots the value of the stocks in my own RRSP since 1997. I retired from teaching business in 1996. During this four year period, I have bought and sold a few stocks but I have not withdrawn from the pot, nor added² to it. Because the money is entirely invested in common stock, there is variation in value. If the RRSP money had been put in a 5 year GIC, the graph line would have been flat at 5%...the money safe, but life would have been dull.
Is there too much volatility? The nadir of the line was in January last year [2000]: was I really poorer then? Am I richer now? The month to month fluctuations are certainly not meaningless, but, in the long run, do they really matter? Right now I am further ahead, by over $10,000, than if I had bought a GIC at 5% in January of 1997.
Conventional wisdom holds that one should have fixed income investment inside an RRSP and equity investment outside. This allows investors to benefit from the dividend tax credit on Canadian source dividends and take advantage of the fact that only half of capital gains are taxable. I am not a shill for industry wisdom. I don't have any fixed income instruments, even in retirement: their income is fixed. Why would one want a fixed income when prices, think energy this year, increase? I'd rather pay full tax on a growing income of Canadian dividends, than pay tax on inactive interest income. In any case, there is no tax to pay until money is withdrawn from the RRSP. The income generated from this RRSP was $510 in 1997. Last year it was $2,012, up 5.2% from 1999. This year, I hope to equal the income I would have had if I had bought a GIC in January of 1997, $2,400. It takes time for the growing dividends to work their magic. The common stocks I purchase provide better than average income. This strategy would not work as well with low-yield equity, no-yield shares or risky common shares.
In April of 2000, I sold with regret, as the yield was 7.3%, the first stock I bought inside this RRSP, Quebec Telephone. Telus bought QTG. I had purchased 300 shares at $18 in 1995 and sold 600 shares (QT split in 2:1 in 1998) at $22.50 for a gain of $8,150. Eventually, I'll have to pay full tax on that gain, but in the meantime I can reinvest it. Again, I'd rather pay tax at full marginal rates on gains than hold a no-possible-gain GIC. What about capital losses? Losses are not deductible against gains inside an RRSP. And I've had a big loss. The second stock I bought in this RRSP was Moore in September of 1997 at $27. Ouch^@*#! In the last month, Moore has doubled, but I still have a paper loss of some $6,000.
There are two risks with the investment strategy I follow: dividend reductions and capital losses. I figure I can mitigate the chance of dividend reductions by purchasing common stocks with a recent dividend increase (I broke that rule with Moore, and lost), and curtail losses by buying stocks when they are value priced, high up the list, and again with a recent dividend increase. A dividend increase is evidence that a company's finances are in order. Most of the time, the strategy works. The odd time there is a Moore, a Royal Trust or a Pacific Northern Gas. But then, if it worked all the time, it would be no fun.

With growing dividends, and when fully invested, this portfolio will eventually be producing more income than a GIC. The 300 shares of Barrick purchased at $23.20, I consider cash as I do not intend to hold them long. I'd like to get bank shares, but it looks like I will end up buying more of one of the companies I already hold. For me, five stocks is sufficient diversification with $50,000. (As I post this to dividendgrowth.ca in January 2005, the value of this portfolio is over $90,000 with the biggest holding 500 TransCanada purchased at $10 in 2000 and now valued at $15,000. I also have 200 BCE, 300 TransAlta, 3,000 Bombardier at $2.40, 200 Goldcorp as I sold my Barrick, and a lot of cash)

² I won't add to this RRSP again: gains are only half taxed outside now.