Model portfolios like those I recommend are ideal for investors who have a single RRSP account. But life isn’t so simple once you’ve accumulated a significant portfolio: chances are you’ll be managing two or three accounts, and if you have a spouse there may well be a few more.

In most cases, it’s most efficient to consider both partners’ retirement accounts as a single large portfolio. In other words, there’s no my money and my spouse’s money: there’s only our money. This strategy has a couple of advantages: first, it allows the family to make the most tax-efficient asset location decisions. Second, it keeps the overall number of holdings to a minimum, which reduces transaction costs and complexity.

Meet Henry and Anne, who have a combined portfolio of $480,000. Let’s assume they are the same age and plan to retire at about the same time. Their financial plan revealed that a mix of 50% bonds and 50% stocks is suitable for their risk tolerance and goals. Anne has a generous defined benefit pension plan and therefore has little RRSP room: most of her personal savings go to a non-registered account. Henry has no pension plan and makes regular RRSP contributions.

If we treat all their accounts as a single portfolio, here’s how one might set it up for maximum efficiency:

Portfolio 1

With this setup, all of the bonds are in tax-sheltered accounts and the equities are in Anne’s non-registered account, which is likely to result in a lower tax bill. Moreover, the whole portfolio can be built with just seven holdings (six if they use an ETF that combines US and international equities). Nice and tidy.

Keeping it in balance

But there are potential problems here. For starters, if Henry and Anne view their accounts separately, they’ll notice his accounts are 100% bonds, while hers are over 77% equities. Although the overall mix is a balanced 50-50, the individual spouses are taking dramatically different levels of risk. This is purely behavioral, and there’s no need to make any changes if Henry and Anne are comfortable, but it’s an issue that frequently comes up with couples.

More daunting problems can arise when it’s time to add new money and rebalance the portfolio. Fast-forward a year and assume stocks have fallen in value by 10%. We’ll also imagine that Henry and Anna have made their TFSA contributions for the year, Henry has put $10,000 in his RRSP and Anne has added $9,000 to her non-registered account. Now the portfolio looks like this:

Portfolio 2

We need to rebalance to get back to the 50-50 target, but we can’t do that by simply adding to the existing holdings. The equity allocation needs to be $243,000 (50% of the total), but we only have $225,000 in the non-registered account. So we’ll have to sell some bonds in one of the registered accounts and use it to buy equities. International equities are the least tax-efficient (because they are not eligible for the dividend tax credit and they have a higher yield than US equities), so they should be the first candidate. Here’s one solution:

Portfolio 3

In many ways it would be simpler to just use a 50-50 asset mix in each individual account: that would certainly make rebalancing easier. But it also mean a lot more transaction costs and probably a higher tax bill, especially if Anne used bond ETFs in the taxable account. Using the above strategy takes a little more planning and experience, but it should produce the best results.