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

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May 3, 2015
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Mobhatia91 wrote:
Oct 29th, 2017 2:41 pm
Hello 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

Thank you
Welcome!

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!
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frankc92 wrote:
Nov 1st, 2017 10:51 am
Quick question for you CCP gurus regarding tax-efficiency.

Current situation: limited income, (<45k/year), still in school, may be going back to a 4-year program in the coming year(s). Currently have a maxed TFSA with a split CCP portfolio (see below for makeup), and a fair sum of money sitting in an EQbank account at 2.3% interest. Would like to know how to best maneuver some of that money in EQBank into a Margin-based Questrade account, and which ETFs to proceed with (i.e. NA equities/bonds vs int'l) in terms of maximizing tax efficiency.

Current TFSA umbrella:
60% sitting in a Tangerine Balanced Growth Mutual Fund
40% sitting in a Questrade TFSA account with the following breakdown:
  • VAB - what's going on with Canadian bonds? Has it been down across all the Canadian-bond based ETFs?
  • VCN
  • VFV
  • VUN
  • XEC
  • XEF
  • XRE
Back when I was doing quite a bit more research into CCP and ETF investing, the idea of keeping certain types of equities in tax-sheltered accounts vs non-registered came up quite often. Just wondering if there is any updated guidelines to be aware about and if anyone can point me in the right direction?

Thanks!
Two quick questions. Is there a reason you are going to a margin account before going to your RRSP? Also, why do you own both VUN and VFV?

Overall, the main tax benefit related things you need to know:

1) Interest from bonds/REITs are fully taxable at your marginal tax rate, general wisdom is to keep them in a tax sheltered account;
2) Canadian equities held in a margin/non-registered account qualify for the Canadian Dividend Tax Credit. If you are selling something from your TFSA to move to your margin account, you should start with VCN; and
3) A US-listed ETF that holds US stocks (e.g., VTI) will not be charged a foreign witholding tax if held in an RRSP. However, to do this you will need to convert to USD to purchase the ETF (use Norbert's Gambit). VUN and VFV would not qualify for this, so you wouldn't have to worry about moving these into your RRSP (if there is room). Just wanted to flag it as an option for the future.

Where to specifically put each of your securities is hard without knowing how much each makes up of your portfolio.

Some further reading that could help:
1) http://canadiancouchpotato.com/2012/09/ ... explained/

2) http://canadiancouchpotato.com/2016/07/ ... revisited/
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Jun 12, 2010
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MikeZ13 wrote:
Nov 1st, 2017 12:54 pm
Two quick questions. Is there a reason you are going to a margin account before going to your RRSP? Also, why do you own both VUN and VFV?

Overall, the main tax benefit related things you need to know:

1) Interest from bonds/REITs are fully taxable at your marginal tax rate, general wisdom is to keep them in a tax sheltered account;
2) Canadian equities held in a margin/non-registered account qualify for the Canadian Dividend Tax Credit. If you are selling something from your TFSA to move to your margin account, you should start with VCN; and
3) A US-listed ETF that holds US stocks (e.g., VTI) will not be charged a foreign witholding tax if held in an RRSP. However, to do this you will need to convert to USD to purchase the ETF (use Norbert's Gambit). VUN and VFV would not qualify for this, so you wouldn't have to worry about moving these into your RRSP (if there is room). Just wanted to flag it as an option for the future.

Where to specifically put each of your securities is hard without knowing how much each makes up of your portfolio.

Some further reading that could help:
1) http://canadiancouchpotato.com/2012/09/ ... explained/

2) http://canadiancouchpotato.com/2016/07/ ... revisited/
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 *not* 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!
Last edited by frankc92 on Nov 1st, 2017 2:42 pm, edited 1 time in total.
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frankc92 wrote:
Nov 1st, 2017 10:51 am

[*]VAB - what's going on with Canadian bonds? Has it been down across all the Canadian-bond based ETFs?
Stocks are for income, bonds are for stability (c) DoNotRemeberWho

As for 25yo, I think could we better return-wise to drop bonds completely. Especially buying them in rising rate env.
Yes, you'd have a bit more volatility (not sure what is your bond portion, 20% will not make ride much smoother imo anyway), but returns would be 1-2% YEARLY greater, a BIG difference across 20+ years
P.s. 60% sitting in a Tangerine Balanced Growth Mutual Fund - I'd say you're wasting ~0.8% MER on this. Once you have self-brokerage account and doing ETFs anyway, have 1.x% MER mutual fund is non-optimal, imo
p.s.s. From those two, I'd rather dump Tangerine MF and buy 20%XIC 80%XAW instead, and keep VAB if you need to have bonds to sleep better. Bonds are lesser evil here from long time prospective, imo.

and yes :) I'd replace
VFV
VUN
XEC
XEF
XRE
with single XAW

OK, maybe XRE could go separate if you're fan of fine tuning AA, but I'd rather try to keep it simple
Make the Trudeau drama teacher again!
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asa1973 wrote:
Nov 1st, 2017 2:52 pm
Stocks are for income, bonds are for stability (c) DoNotRemeberWho
Stocks let you eat well. Bonds let you sleep well. :)
Invest your time actively and your money passively.
Newbie
Oct 28, 2017
2 posts
MikeZ13 wrote:
Nov 1st, 2017 12:31 pm
Welcome!

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!
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!
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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)
Make the Trudeau drama teacher again!
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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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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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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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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!
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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
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Feb 11, 2016
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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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