Investing

Non-registered account advice

  • Last Updated:
  • Nov 8th, 2017 10:18 pm
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[OP]
Newbie
Jun 23, 2012
43 posts
5 upvotes
Calgary

Non-registered account advice

Hi,

I'm in my early 30's and married. Both wife and I work in healthcare and are entitled to DB pensions. We will be in position to max our TFSA' as well as the RRSP accounts early next year. We own a home and pay >100% of required payments to pay off the mortgage early.

Now that our registered accounts are nearly maxed out, I'm curious as to what investments would be the best for a non-registered account. We could simply do a CCP but I wonder if a dividend strategy should be considered to minimize taxes. My current marginal tax rate is 41% and the projected DB payout at 58 (my factor 85 age) will be a marginal tax rate of 36%, not considering any other income source.

Alternatively, should other investments outside of stocks/bonds be considered?

Any advice is appreciated.
6 replies
Deal Addict
User avatar
May 11, 2014
1656 posts
677 upvotes
Iqaluit, NT
Rhinox87 wrote:
Nov 6th, 2017 7:26 pm
Hi,

I'm in my early 30's and married. Both wife and I work in healthcare and are entitled to DB pensions. We will be in position to max our TFSA' as well as the RRSP accounts early next year. We own a home and pay >100% of required payments to pay off the mortgage early.

Now that our registered accounts are nearly maxed out, I'm curious as to what investments would be the best for a non-registered account. We could simply do a CCP but I wonder if a dividend strategy should be considered to minimize taxes. My current marginal tax rate is 41% and the projected DB payout at 58 (my factor 85 age) will be a marginal tax rate of 36%, not considering any other income source.

Alternatively, should other investments outside of stocks/bonds be considered?

Any advice is appreciated.
The investments you pick should be based on your risk profile. The tax treatment while important should be second. Because of that, you need to pick investments you are comfortable with. After you do that, allocating them in RRSP, TFSA, and non-registered comes after.

From a tax-efficiency standpoint, fixed income should go TFSA, US and Foreign dividend producing equity should be placed in RRSPs and Canadian equity non-registered. However, to be able to do that, you have to be in a position that you have all types of investments, the room to do it, and you have to figure out whether the allocations are not impeding any growth. Just because fixed income is more tax efficient in a TFSA, doesn't necessarily mean you should. If you are earning 2% interest on a GIC in a TFSA, are you really saving that much money compared to a gain in one year of 8~10% on a Canadian Equity placement with 3% dividend? Mind you, in the future this may change if higher interest rates come back. To me, the overall growth of my portfolio is more important than the tax efficiency.

Since you are in a very amiable position, you may want to start considering individual share investments? Also, do you have enough in cash savings? While they might not yield much, you may want to consider having free cash available especially if something happens in life. Do you have children or plan to have children? Any large purchases/life goals you want to save for? These are the kind of questions you should think about more-so than what is the most tax efficient.
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[OP]
Newbie
Jun 23, 2012
43 posts
5 upvotes
Calgary
Thank you for the quick reply. I'd concur that total growth is more important than tax efficiency. I came across swap based ETFs that may just do the trick to increase tax efficiency while maintaining the mandate of total growth.

I don't feel comfortable putting any of the saving for the goals you mentioned in stock market as most are short term (<5years).
Deal Fanatic
Feb 15, 2006
6826 posts
1460 upvotes
Toronto
You are in a great financial position. Not many people have DB pension these days.

When your mortgage renewal comes up, consider switching it to HELOC. It gives much more flexibility in repayment, and gives you room to borrow in case you need it.

As for investing, max out TFSA first, then RRSP. If you'll have kids soon, then RESP too. Have enough insurance. Then as xgbsSS indicated, invest based on your risk profile, and time horizon.
Deal Addict
Mar 8, 2013
1414 posts
383 upvotes
If you are dependent on 2 full time employment incomes, you should look at disability insurance. After that, why not think about something beyond maximizing your investment income? Instead of managing non-registered investments to increase your income, consider charities that mean something for you, or foster parent plans, etc. Not many couples have the luxury of DB pensions, so why not improve the life of those less fortunate.
[OP]
Newbie
Jun 23, 2012
43 posts
5 upvotes
Calgary
Our needs over next couple decades may vary depending upon kids etc. Thank you all for great suggestions, particularly beyond maximizing investments.
Deal Addict
User avatar
May 11, 2014
1656 posts
677 upvotes
Iqaluit, NT
Here is an article on tax efficiency using ETFs
https://beta.theglobeandmail.com/globe- ... ndmail.com&

ETFs will be a fairly easy thing for you to hold non-registered. If you wanted to start with individual shares, you can start by buying safer companies and in small amounts to get yourself into it. you could buy one of the banks, a utility company perhaps, insurance company etc.

Another thing you might want to consider if you are a high income earner, is a life insurance policy. In most cases, it really isn't worth it, however if you will likely be a high networth person in the long term, and your income is high, you could build cash value in the plan that is also tax sheltered, however, don't expect big returns especially as many insurance companies don't exactly have the best returns in their plans. But investing in this manner can give you collateral to use if you need to make expenditures in the future, and give you life insurance to boot. However, in many cases, it is expensive and not worth it.

Since you have a lot of potential things that may occur in the future, I would suggest keeping rather conservative and have a larger cash balance. You seem to have some potential large cash expenditures in the near term future. Also, if you do make investments non-registered, perhaps keep these investments relatively conservative and keep your tax-sheltered investments more aggressive to take advantage of tax-free gains.
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