If your Registered Retirement Savings Plan (RRSP) holds the bulk of your retirement savings, it’s like your own personal pension plan. That means you’ll want to make sure that it’s there for you when you need it. But if you’re too conservative with your investing strategy you may shortchange the growth you’ll need for the retirement you dream of. A “core and explore” fund portfolio can help with both: a solid and substantial core of conservative investments with a little extra spice by exploring investments with a higher growth potential.

Core holdings are long-term “buy and hold” investments of low to moderate risk, at the same time offering the potential for attractive long-term investment returns within your risk tolerance.

Diversification still matters

Just as your overall mutual fund holdings should be well diversified, so should your core holdings.

Equities. Equity core holdings often consist of “large-cap” equity funds that invest in blue-chip stocks. These funds may not always win the performance race, but they have good long-term track records – ideal for the long time horizons of most RRSPs.

Fixed income. The fixed-income core of your fund portfolio should consist of moderate-risk, solid investments such as funds that invest in government bonds. Consider funds that focus on intermediate bond maturities, since these are typically less volatile than longer-term bonds.

Global funds. With Canada representing only a small percentage of global equity and bond markets, foreign equity or fixed-income funds may be good candidates for a portion of your core holdings.

How big is your core?

How much of your total RRSP portfolio your core should represent varies with factors such as individual financial circumstances and risk tolerance. For many investors, 70% to 80% is common.

Keep in mind that the types of funds that constitute your core will depend on your personal investment characteristics. Funds that can be considered core holdings for one investor may not be suitable as a core for another investor.

Added potential

With the support of a strong core, your RRSP can benefit from the added performance potential of some more aggressive, less mainstream investments. These are generally riskier and more volatile but have the potential to add higher returns.

These might include small-capitalization and mid-cap equity funds, funds that invest in riskier securities or geographical markets, and fixed-income funds that invest in high-yield corporate bonds or higher-potential securities. Whether you are adding new funds this RRSP season or staying the course, now’s the ideal time to review the structure of your mutual fund portfolio to make sure that your own “personal pension plan” is set up for success.