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

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  • Sep 23rd, 2018 10:20 am
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Deal Addict
Jan 20, 2016
1747 posts
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Houston, TX
Mobhatia91 wrote:
Nov 2nd, 2017 1:40 am

Any reason for VCN vs XIU?

Thank you and much appreciated!
VCN tracks "all" TSX while XIU only 60. VCN has MER 0.06% while XIU has 0.18...quite enough for me

p.s. I'd rather ask VCN vs XIC as both track SAME index and has same MER...
XIC is a bit more liquid and has lower spread...but not a deal breaker anyway, mostly question of personal choice (and XIC a bit cheaper - easier to do DRIP or just buy new shares)
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May 3, 2015
259 posts
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Toronto, ON
frankc92 wrote:
Nov 1st, 2017 2:42 pm
Thanks for the reply Mike. To answer your questions:

1. My US equities make up about 23% of my investment portfolio, with VFV comprising about 40% of the US equities component. I wanted to increase my risk a bit and place a bit of higher emphasis on the S&P 500 index, while mitigating some of that with VUN.
2. Re: RRSP vs margin - great question, and to be honest I'm entirely sure my rationale is correct. I'm expecting a significant jump in income in within the next 5-10 years (i.e. from mid 50s to >150); currently a 25 y/o student. Taking this into consideration, I was under the impression that it would be a good idea to save the contribution room as it carries over. Is this the right train of thought?

The TFSA portfolio breakdown is something along these lines:

VAB: 20%
VCN: ~18.5%
US equities: 23%
XEF: 18.5%
XEC: 10%
XRE: 10%

Will visit those links. Thanks!
No problem!

Okay, great to know that there is a rationale for your VFV vs VUN ETFs, just wanted to see.

In regards to your RRSP situation, your general thinking is correct about when to claim deductions from your RRSP, but you are incorrect that you need to put off investing in your RRSP as a result. I mention this above in my reply to Mobhatia91. A quick copy and paste from there:

"When you contribute to your RRSP, you are eligible to receive a tax refund. You can decide to claim this refund for the tax year you contributed it in, or wait for a later date. You would generally wait for a later date if your salary was really low. With a higher salary, you will receive a better refund.

Any returns that you earn in this account are tax deferred. That means that as long as its in the RRSP, you are not taxed on your gains. This allows you to have more money available to reinvest and grow your portfolio while it is in the RRSP."

As a result, even if you have a low salary at the moment and expect it to increase in the near future, it makes more sense to max out your RRSP contributions before starting a margin account. This is because these investments will not be subject to tax for the time being and can compound and grow. This is better than a margin/non-registered account, as you will obviously be taxed on any gains you accrue each year. Again, the deductions that you are entitled to as a result of these contributions can be claimed at a later date.

Would obviously recommend reading more into it. Here is a quick article that may help clarify if my post didn't.

http://business.financialpost.com/perso ... -deduction
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May 3, 2015
259 posts
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Toronto, ON
Mobhatia91 wrote:
Nov 2nd, 2017 1:40 am
You are a god send. I never thought someone would reply back to my questions. Thank you for answering my questions with so much clarity.

The TRSA point u make makes sense to max it out and then contribute to RRSP. I have been reading up on how the holding tax is differed if you hold money in RRSP. But I like the idea of growing money in my TFSA due to easy access.

I will ask you more eventually when I save more and have a decent bankroll.

Any particular reason you recommend the CCP portfolio? And what about the Vanguard vs iShares? Looking at Morningstar ratings vanguard has had lower ratings and lower total market cap? 3.5 billion vs 550 million?
Any reason for VCN vs XIU?

Thank you and much appreciated!
asa1973 wrote:
Nov 2nd, 2017 11:42 am
VCN tracks "all" TSX while XIU only 60. VCN has MER 0.06% while XIU has 0.18...quite enough for me

p.s. I'd rather ask VCN vs XIC as both track SAME index and has same MER...
XIC is a bit more liquid and has lower spread...but not a deal breaker anyway, mostly question of personal choice (and XIC a bit cheaper - easier to do DRIP or just buy new shares)
You're welcome :)

The main reason I recommend the CCP portfolio is due to its simplicity (3 ETFs vs 5 or 6). In terms of choosing between comparable ETFs within those three, that can be determined by you. As Asa1973 mentions, VCN/XIC are very similar, so it's essentially personal preference. I am used to Vanguard ETFs and most of my ETFs are there, so I just go with VCN so I limit the amount of sites that I need to scan. XAW and VXC are comparable ETFs as well (XAW a bit lower MER), but again, which you choose is up to you. The difference between VCN and XIU is also mentioned in Asa's post :)

CCP provides a little rationale for some of it's picks, so I have linked to the 2017 articles for further reading.

http://canadiancouchpotato.com/2017/01/ ... nt-page-3/
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Jun 12, 2010
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MikeZ13 wrote:
Nov 2nd, 2017 2:55 pm
No problem!

Okay, great to know that there is a rationale for your VFV vs VUN ETFs, just wanted to see.

In regards to your RRSP situation, your general thinking is correct about when to claim deductions from your RRSP, but you are incorrect that you need to put off investing in your RRSP as a result. I mention this above in my reply to Mobhatia91. A quick copy and paste from there:

"When you contribute to your RRSP, you are eligible to receive a tax refund. You can decide to claim this refund for the tax year you contributed it in, or wait for a later date. You would generally wait for a later date if your salary was really low. With a higher salary, you will receive a better refund.

Any returns that you earn in this account are tax deferred. That means that as long as its in the RRSP, you are not taxed on your gains. This allows you to have more money available to reinvest and grow your portfolio while it is in the RRSP."

As a result, even if you have a low salary at the moment and expect it to increase in the near future, it makes more sense to max out your RRSP contributions before starting a margin account. This is because these investments will not be subject to tax for the time being and can compound and grow. This is better than a margin/non-registered account, as you will obviously be taxed on any gains you accrue each year. Again, the deductions that you are entitled to as a result of these contributions can be claimed at a later date.

Would obviously recommend reading more into it. Here is a quick article that may help clarify if my post didn't.

http://business.financialpost.com/perso ... -deduction
Awesome. This is just the info I was looking for - thank you for clarifying. I apologize, I meant to say that I wasn't sure that my rationale was correct hahaha.
Where can I find out what my RRSP contribution limit to date is? Would it be a good idea to have the same ETF portfolio within my RRSP (i.e. same ETF selections & percentages as my TFSA)?
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May 3, 2015
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frankc92 wrote:
Nov 2nd, 2017 6:29 pm
Awesome. This is just the info I was looking for - thank you for clarifying. I apologize, I meant to say that I wasn't sure that my rationale was correct hahaha.
Where can I find out what my RRSP contribution limit to date is? Would it be a good idea to have the same ETF portfolio within my RRSP (i.e. same ETF selections & percentages as my TFSA)?
No worries, lol, I figured that's what you meant :)

Your RRSP contribution room can be found through your CRA online account. If you haven't registered online yet, you can do so here: https://apps6.ams-sga.cra-arc.gc.ca/gol ... er&lang=en. I believe they will need to mail you the password, so the whole process will take a bit.

You could definitely just do the same split in your TFSA/RRSP if you wanted. There are more efficient ways to distribute them, but more so once you have maxed out both your TFSA/RRSP and need to start choosing what's to go in your unregistered account. So essentially, if it's going to be a while before you'll max both, I'd say yes continue with how you do it in your TFSA until you max it out. If you think it will be maxed out soon, you may want to start allocating them to the certain accounts now.

What I'd suggest:

RRSP: Bonds and REIT first (taxed fully at marginal rate if in non-registered account), then US/Intl/Emerging Equities
TFSA: Remaining US/Intl/Emerging Equities (+ Canadian equities if there's room) -> equities in TFSA as it helps grow your room and is tax free when you withdraw (so makes sense to have highest earning potential here imo)
Margin: Canadian Equities if no room in TFSA (get Canadian dividend tax credit if have Canadian equities in a non-registered account)
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Sep 23, 2012
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MikeZ13 wrote:
Nov 2nd, 2017 2:55 pm
"When you contribute to your RRSP, you are eligible to receive a tax refund. You can decide to claim this refund for the tax year you contributed it in, or wait for a later date. You would generally wait for a later date if your salary was really low. With a higher salary, you will receive a better refund.

Any returns that you earn in this account are tax deferred. That means that as long as its in the RRSP, you are not taxed on your gains. This allows you to have more money available to reinvest and grow your portfolio while it is in the RRSP."

As a result, even if you have a low salary at the moment and expect it to increase in the near future, it makes more sense to max out your RRSP contributions before starting a margin account. This is because these investments will not be subject to tax for the time being and can compound and grow. This is better than a margin/non-registered account, as you will obviously be taxed on any gains you accrue each year. Again, the deductions that you are entitled to as a result of these contributions can be claimed at a later date.

Would obviously recommend reading more into it. Here is a quick article that may help clarify if my post didn't.

http://business.financialpost.com/perso ... -deduction
According to those on the PersonalFinanceCanada subreddit, you actually come out ahead by investing in a taxable account vs. investing in an RRSP and delaying claiming the tax deduction (in the vast majority of cases). I always have a hard time wrapping my head around the math of why this is, but I believe it's correct.

It involves the fact that RRSP accounts are tax-deferred (you pay tax on the entire amount that you eventually withdraw from it), and in the case of delaying, your delayed tax deduction is not growing from investment. So when you eventually withdraw what you invested in your RRSP, the amount you end up with after it is taxed (plus the delayed tax deduction which was not subjected to investment growth) is less than the amount you would have if you had invested in a taxable account, even though in the latter case the savings are not growing tax-free. You only come out ahead using an RRSP if you claim the tax deduction and invest the tax deduction right away.

If you Google "Reddit PersonalFinanceCanada RRSP delay", you'll find lots of discussion on it. The user named "aughhhhh" always explains it, and he/she even has a website with a spreadsheet where you can test each case. The math checks out from what I can tell, and I haven't seen anyone on the subreddit prove it wrong.

Good luck!
[OP]
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Oct 1, 2006
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SRI101 wrote:
Nov 3rd, 2017 12:26 am
According to those on the PersonalFinanceCanada subreddit, you actually come out ahead by investing in a taxable account vs. investing in an RRSP and delaying claiming the tax deduction (in the vast majority of cases). I always have a hard time wrapping my head around the math of why this is, but I believe it's correct.

It involves the fact that RRSP accounts are tax-deferred (you pay tax on the entire amount that you eventually withdraw from it), and in the case of delaying, your delayed tax deduction is not growing from investment. So when you eventually withdraw what you invested in your RRSP, the amount you end up with after it is taxed (plus the delayed tax deduction which was not subjected to investment growth) is less than the amount you would have if you had invested in a taxable account, even though in the latter case the savings are not growing tax-free. You only come out ahead using an RRSP if you claim the tax deduction and invest the tax deduction right away.

If you Google "Reddit PersonalFinanceCanada RRSP delay", you'll find lots of discussion on it. The user named "aughhhhh" always explains it, and he/she even has a website with a spreadsheet where you can test each case. The math checks out from what I can tell, and I haven't seen anyone on the subreddit prove it wrong.

Good luck!
Thanks for sharing. He has a very interesting website.
http://www.retailinvestor.org/RRSPmodel.html
Jr. Member
Feb 11, 2016
108 posts
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Any thoughts regarding borrowing on margin rather than carrying a mortgage if you're choosing to leverage regardless? For example an interest rate of 2% from IB which is also tax deductible beats any mortgage interest rate out there today.
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Apr 16, 2009
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Xbowop wrote:
Nov 7th, 2017 11:22 pm
Any thoughts regarding borrowing on margin rather than carrying a mortgage if you're choosing to leverage regardless? For example an interest rate of 2% from IB which is also tax deductible beats any mortgage interest rate out there today.
Borrowing through IB runs the risk if there's ever a margin call and your investments can't cover the loan.

Having a mortgage/HELOC will 99% not have this issue.
Jr. Member
Feb 11, 2016
108 posts
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DefconZero wrote:
Nov 8th, 2017 12:43 am
Borrowing through IB runs the risk if there's ever a margin call and your investments can't cover the loan.

Having a mortgage/HELOC will 99% not have this issue.
What if your ratio is very safe? Say you have 2 dollars for every dollar you're borrowing. Also you leave your bond allocation in your margin account.

Also you can have heloc ready to top up your margin account if needed.

Feels like you can take enough precautions to avoid a margin call
[OP]
Deal Addict
Oct 1, 2006
1793 posts
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Montreal
I am not a fan of leverage. Too much risk.

A market crash with an 80/20 equity/bonds allocation is already nerve wracking. I can't imagine stomaching a market crash with a leveraged portfolio.
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Jul 23, 2007
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Since I'm always fully invested, no matter what the markets are doing, I like to be able to sleep at night. No leverage for me, thanks.
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Jan 20, 2016
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Germack wrote:
Nov 9th, 2017 3:30 pm
Interesting article by Larry Swedroe: https://www.advisorperspectives.com/art ... sacred-cow

There are no logical, economic reasons for preferring dividends. Worse, new research reveals just how inefficient a high-dividend strategy can be for taxable investors.
Larry is known for bashing dividends strategy :) he's antivdiv-perma
It's also perpetual topic on Boglehead forum about div vs nondiv

p.s. As being mentioned, it's HIGHLY depends on TAXATION, which is quite DIFFERENT in USA and Canada in terms of div credits for eligible dividends

I'm not an accountant, but on my calculations, dividends income taxed a bit more preferably in Canada, at least in 100-150k yearly (total) income range, and for retired persons as well.

On side note, I could say Canadian div stocks imo better in terms of yield and div growth, while in USA you'd be better in plain index investing
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