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Couch potato investing for the last 12 years - tracking my progress

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  • Jul 26th, 2017 12:00 am
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Deal Addict
Oct 1, 2006
1594 posts
491 upvotes
Montreal
MoreDealsPlease wrote:
Mar 5th, 2017 12:45 pm
Thanks for the feedback. My thinking was that VCN and ZAG (both are equities) have more potential to grow so I maxmized them in the TFSA accounts and ZAG (bonds) have less potential so they went in RRSP. Later when I retire I think I would want the TFSA account to have exercised its maximum potential since I won't be charged tax when taking money from it, but I will from the RRSP.

I might be missing other factors.
Yes, ZAG should be in your RRSP and not in your TFSA.

Your plan looks very good. Good luck!
Member
Dec 27, 2005
286 posts
23 upvotes
Toronto, ON
Hello Germack,

What factors does one should consider as to where to invest , RRSP or TFSA in terms of tax efficiency

Another related is My wife works for a hospital and has a pension plan HOOPP ( The Healthcare of Ontario Pension Plan). Now when we are budgeting to invest money, how should we invest . Would the below order make sense just thinking about Taxes at retirement

1. Invest in Both our TFSA
2. Invest in My RRSP first
3. Invest in Wife's RRSP

My above logic is based on , on retirement wife will get paid by her Pension , if we have alot in her RRSP's , at retirement this will make her income go higher ( PENSION + RRSP ). I'm not certain if her defined benefit us counted as her income at retirement or we already paid taxes

Does would it make sense any other way ?

Does it make sense? Let me know if anyone wants any clarification

Germack wrote:
Mar 5th, 2017 2:18 pm
Yes, ZAG should be in your RRSP and not in your TFSA.

Your plan looks very good. Good luck!
Newbie
Jan 4, 2017
46 posts
19 upvotes
jeffyjaixx wrote:
Feb 10th, 2017 2:09 pm
Thanks for the information.

I've submitted my forms to convert my mutual funds to e-series funds account last Thurs/Fri. Just wondering how long does one need to wait usually for the conversion to be processed through? So far I've only opened a regular TFSA Mutual Funds account. Was contemplating opening a RRSP Mutual Funds account as well now just so I can get the ball rolling now to get it set up then when the time comes when I've maxed out my TFSA, I can use the RRSP account to keep purchasing e-series. Good idea?
I have no idea about the conversion process to convert mutual funds to e-series, what I did was just open a TDDI account and I purchased the e-series funds through that. It probably won't be too long but do keep us posted how it goes! There's a lot of debate on the topic of whether it's better to max out your TFSA or RRSP first, it's something that might be different depending on your particular situation. If you're in a position to max out both, definitely do that. Otherwise maxing out one then moving to the other is fine too, either way you're saving money and keeping it all invested so that's great.

There are differences in the way taxation is handled in RRSP vs TFSA depending on what type of investments you're holding in there. I'm still a noob here too, but that is definitely something you'll want to get more informed about as you start to fill up both types of accounts. I think one of the main things is with how the 15% withholding tax is handled, but other more knowledgeable members here might be able to provide better info on that.
Newbie
Mar 20, 2009
63 posts
27 upvotes
Canadian-domiciled mutual funds like the eSeries ones can not avoid or recover the withholding tax in an RRSP or TFSA, only in a taxable account. However, withholding tax is only paid on the dividends, so it's fairly small (like 0.3%) while capital gains and other returns would cost you considerably more if you had to pay income tax on it (the amount depends on your income). So if you have room in a registered account, it's much better to hold the funds there. If your registered accounts are maxed, then it may be better to hold bonds in taxable accounts, due to low expected returns over the next decade. If your bonds are not enough to fully make up the taxable account portion, then it's probably next best to hold the Canadian equity in taxable, because the discount on Canadian dividends will be more than the savings of US withholding tax.

source reddit
Sr. Member
Dec 28, 2006
839 posts
164 upvotes
Germack wrote:
Mar 4th, 2017 11:00 am
Because of lower fees (MER). The lower your fees the higher your likely return.

MER of various investment vehicles:
Mutual Funds: ~2.5%
Tangerine Index Funds: ~1%
TD e-series: ~0.42%
ETFs: ~0.15

The impact of these fees is shown in the image below:

Affect of MER.png
This is a fantastic graphic and really shows how a seemingly tiny change can compound over years.

I would just like to add 1 small point - this kind of difference is over 40+ years of compounding. The most important thing to do is to start and if you need to use tangerine or e-series or even regular mutual funds to get the ball rolling that's perfectly fine. Even if you hold them for 5 years before you get comfortable enough to switch over the ETFs, the important thing is to get started.
Deal Fanatic
User avatar
Feb 28, 2006
6448 posts
340 upvotes
Richmond Hill
zcypher wrote:
Mar 15th, 2017 3:56 pm
I have no idea about the conversion process to convert mutual funds to e-series, what I did was just open a TDDI account and I purchased the e-series funds through that. It probably won't be too long but do keep us posted how it goes! There's a lot of debate on the topic of whether it's better to max out your TFSA or RRSP first, it's something that might be different depending on your particular situation. If you're in a position to max out both, definitely do that. Otherwise maxing out one then moving to the other is fine too, either way you're saving money and keeping it all invested so that's great.

There are differences in the way taxation is handled in RRSP vs TFSA depending on what type of investments you're holding in there. I'm still a noob here too, but that is definitely something you'll want to get more informed about as you start to fill up both types of accounts. I think one of the main things is with how the 15% withholding tax is handled, but other more knowledgeable members here might be able to provide better info on that.
Just to follow up, I opened regular mutual funds accounts for a TFSA, RRSP and non-registered at TD then sent in my conversion forms (all 3) to convert them all to e-series funds accounts. Also followed up with TD Investment Services and confirmed that my registered transfer from Tangerine has went through and should show up in 3-5 business days on my easyweb. The whole process took about 3 weeks or so. Now I'm planning to max out my TFSA first then RRSP then eventually non-registered. I have never contributed to my RRSP before so I need to read up on how much I can contribute and all that soon. Though, my first step would be to max out my TFSA. I've read briefly about maxing out TFSA vs RRSP and it seems for my age (30), it's better to max out the TFSA first in case I need to use it whereas RRSP, you would lose the contribution room?

Planning to go the Assertive approach (25% equally on Fixed Income, Cdn equity, US equity, and Int'l equity), my question is should I do it all in my TFSA account? or should I put some in my RRSP and some in my TFSA? I'm still slightly confused in to put which one in which account to maximize tax efficiency. Any advice would be very much appreciated!
Deal Addict
User avatar
Dec 14, 2006
2842 posts
139 upvotes
Montreal
jeffyjaixx wrote:
Mar 16th, 2017 11:38 am
Though, my first step would be to max out my TFSA. I've read briefly about maxing out TFSA vs RRSP and it seems for my age (30), it's better to max out the TFSA first in case I need to use it whereas RRSP, you would lose the contribution room?
Correct me if i'm wrong but my understanding is that it's better to max out your RRSP first, then you can use your return + cash to max out towards your TFSA.

For taxing purposes, it's better to max out RRSP first for sure as it lower your income.
I was there at the 32$ price error at dell.ca day AND at the 150$ off price error at fs.ca
RFD price error moto: "Buy now, think later." -Ahzuz
Deal Fanatic
User avatar
Feb 28, 2006
6448 posts
340 upvotes
Richmond Hill
Ahzuz wrote:
Mar 16th, 2017 1:19 pm
Correct me if i'm wrong but my understanding is that it's better to max out your RRSP first, then you can use your return + cash to max out towards your TFSA.

For taxing purposes, it's better to max out RRSP first for sure as it lower your income.

Is that true? Hmm, I will probably contribute to my RRSP this year then since the time to contribute to RRSP of 2016 is over already.
Newbie
Dec 18, 2008
8 posts
5 upvotes
jeffyjaixx wrote:
Mar 16th, 2017 1:57 pm
Is that true? Hmm, I will probably contribute to my RRSP this year then since the time to contribute to RRSP of 2016 is over already.
It depends on your income tax level. If you're in high tax bracket, it makes more sense to use RRSP first, otherwise you can use TFSA first, and save RRSP room when your income is higher.
Deal Addict
User avatar
Aug 22, 2008
1044 posts
22 upvotes
Toronto
This may have been answered in this thread, but can anyone tell me the difference between VUN vs VUS? I understand that VUS is hedged, but what does that mean in terms of how it'll affect my portfolio? Planning to hold in RRSP.

Thanks
Sr. Member
Apr 21, 2014
964 posts
205 upvotes
Alberta
Ahzuz wrote:
Mar 16th, 2017 1:19 pm
Correct me if i'm wrong but my understanding is that it's better to max out your RRSP first, then you can use your return + cash to max out towards your TFSA.

For taxing purposes, it's better to max out RRSP first for sure as it lower your income.
It all depends on your tax bracket now vs retirement. If you are in a much higher tax bracket now then at retirement then Rrsp is the place to go first. To minimize taxes in retirement and get the full govt benefits it's great if you have rrsp TFSA and non reg. But if you don't have the resources I would do rrsp only if you're in a high tax bracket.
Deal Addict
User avatar
Dec 14, 2006
2842 posts
139 upvotes
Montreal
abc123yyz wrote:
Mar 16th, 2017 5:56 pm
It all depends on your tax bracket now vs retirement. If you are in a much higher tax bracket now then at retirement then Rrsp is the place to go first. To minimize taxes in retirement and get the full govt benefits it's great if you have rrsp TFSA and non reg. But if you don't have the resources I would do rrsp only if you're in a high tax bracket.
What is high tax bracket considered ?

33%, 202k$ income ?
29% ? 143k?
26% ? 92-142k ?
20.5% ?
I was there at the 32$ price error at dell.ca day AND at the 150$ off price error at fs.ca
RFD price error moto: "Buy now, think later." -Ahzuz
Sr. Member
User avatar
Feb 1, 2012
582 posts
458 upvotes
TORONTO
sheepe wrote:
Mar 16th, 2017 4:00 pm
This may have been answered in this thread, but can anyone tell me the difference between VUN vs VUS? I understand that VUS is hedged, but what does that mean in terms of how it'll affect my portfolio? Planning to hold in RRSP.

Thanks
Since VUN is unhedged, if the Canadian $ drops vs the US$, the value of your investment in VUN goes up when measured in C$. Conversely if the C$ rises, the value of your investment in VUN goes down when measured in C$. Just like when the C$ drops a vacation in the USA costs more in C$ and vice-versa.

VUS is hedged so it attempts to filter out those fluctuations and insulate the value of your US investments from exchange rate changes.

But hedging is not perfectly efficient, especially with items like ETFs where the assets fluctuate regularly. So hedging tends to negatively impact returns over the long term.

So if the C$ is low, and you need to cash in some of your investments relatively soon and you want to ensure an appreciation of the C$ does not undermine your returns, then hedging may be appropriate.

But exchange rates tend to equal out over the long term. If you are dollar cost averaging your savings over a long time, then withdrawing over a long time, currency fluctuations are likely to not affect you too much. So for a typical long-term investor / retiree, not hedging will probably be a better choice.

Here are some articles that explain it:
http://canadiancouchpotato.com/2014/01/ ... uity-etfs/
http://canadiancouchpotato.com/2014/01/ ... uity-etfs/
Invest your time actively and your money passively.
Sr. Member
Apr 21, 2014
964 posts
205 upvotes
Alberta
Ahzuz wrote:
Mar 16th, 2017 9:38 pm
What is high tax bracket considered ?

33%, 202k$ income ?
29% ? 143k?
26% ? 92-142k ?
20.5% ?
See marginal rates for alberta here

http://www.taxtips.ca/taxrates/ab.htm

This is federal and provincial portion. I am in the 151-202 bracket which is 42% which means for every dollar I put into rrsp I get about 42 cents back in refund. Now I expect to be in a lower tax bracket when I retire. Probably in the 45-90k range (remember you can income split your RIF with spouse in retirement, but can not income split with normal income now). Which is a marginal rate of 31%. In essence I can get 42 cents now but have to payback 31 cents in retirement. If your income is currently in the 31% bracket you are only getting back 31 cents for each dollar of rrsp contribution. This year I took out an rrsp loan for 10k to put in my wife's spousal rrsp. My refund increased by almost $4,200. If I was in a lower bracket my refund may have only increased by $3,000. So for me rrsp first then TFSA. My wife will probably earn more in retirement than right now so for her TFSA makes sense.
Deal Addict
User avatar
Aug 22, 2008
1044 posts
22 upvotes
Toronto
Deepwater wrote:
Mar 16th, 2017 10:34 pm
Since VUN is unhedged, if the Canadian $ drops vs the US$, the value of your investment in VUN goes up when measured in C$. Conversely if the C$ rises, the value of your investment in VUN goes down when measured in C$. Just like when the C$ drops a vacation in the USA costs more in C$ and vice-versa.

VUS is hedged so it attempts to filter out those fluctuations and insulate the value of your US investments from exchange rate changes.

But hedging is not perfectly efficient, especially with items like ETFs where the assets fluctuate regularly. So hedging tends to negatively impact returns over the long term.

So if the C$ is low, and you need to cash in some of your investments relatively soon and you want to ensure an appreciation of the C$ does not undermine your returns, then hedging may be appropriate.

But exchange rates tend to equal out over the long term. If you are dollar cost averaging your savings over a long time, then withdrawing over a long time, currency fluctuations are likely to not affect you too much. So for a typical long-term investor / retiree, not hedging will probably be a better choice.

Here are some articles that explain it:
http://canadiancouchpotato.com/2014/01/ ... uity-etfs/
http://canadiancouchpotato.com/2014/01/ ... uity-etfs/
Got it, thanks for the explanation!

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