Welcome!Mobhatia91 wrote: ↑Oct 29th, 2017 2:41 pmHello everyone,
A great forum with lots to read on. I am a newbie on investment and would like to learn more and hopefully enjoy a financially stable life.
I currently have a TFSA and an RRSP though I do not make as much to contribute to both. I have about 30k in my TFSA but it is making close to nothing. I have been looking at the questrade TFSA account and thinking to opening on and buying ETFs such as XIC (Canadian market), VUN (CND hedged US market), VEE (emerging markets) and ZAG (BMO bonds) etc.
My questions are,
Is there a difference of keeping the money in TFSA or RRSP?
What about holding US traded ETFs vs TSX efts that track the US market?
What about dividend and taxes of holding the money in one account vs the other?
If anyone can shed some light on these would be very helpful and much appreciated
1) Yes there is a difference. A quick summary:
TFSA = Any returns that you earn in this account will be tax free once you withdraw it. You can liquidate and withdraw this money at any time with no penalties (less any early withdrawal fees associated with the funds you select). However, whatever you do withdraw, that amount can't be put back into the account until the next calendar year (read up more on TFSAs for clarification on this).
RRSP = 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. The gains that you do make will eventually be taxed when you withdraw them at retirement. Theoretically, your tax bracket will be lower at this time, so you will pay less tax on your gains than if you were in the earning prime of your career. 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. Once you contribute money to your RRSP, you cannot withdraw it before retirement without paying a stiff penalty (with a few exceptions - you can research to see what these are). Therefore, if you could need the money in the foreseeable future, TFSA may be a better route to go.
Since you appear to have a lower income, I'd say start with the TFSA and then go to the RRSP once that is maxed. Though you are missing out on some refunds from RRSP contributions in the short term, you can always get those later (and perhaps with better value if your income increases), and I believe having better access to your cash while on a lower income is the greatest benefit of the TFSA for you.
2) There are tax benefits to holding US Traded ETFs in particular accounts, but since you are just starting, I would wait until you become more familiar with investing to pursue this.
3) Again, I wouldn't worry too much about this for now, especially since you are unable to max both accounts/still becoming more familiar with investing.
The funds you suggest (XIC, VUN, VEE, ZAG) are fine but you are missing an International Fund (e.g., VIU). I would recommend just going with the CCP portfolio for now (VCN, XAW, ZAG). You could sub out VCN for XIC if you really wanted, but these 3 will give you the diversification needed for your portfolio while also keeping it simple. Don't underestimate the benefits of simplicity, especially when learning!
Hope this helps!