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Couch potato investing for the last 18 years - tracking my progress

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May 3, 2015
401 posts
160 upvotes
Toronto, ON
ZER0DAY wrote: Hi everyone, I have been doing a lot of reading on the CCP idea and index investing in general. I have a couple of questions that I haven't found answers online. I have unused maxed out RRSP and TFSA as well as a non-registered account.

I am looking to use the following funds:
VCN
VUN
XEF
XEC
VAB

But I am unsure which should go in which account.

Also, I see funds like VUN, which seem to just be a wrapper of VTI that trades on the Canadian exchange, why do these exist? and are there any downsides to owning a wrapped fund like that?

Thank you for your help!
I have a very similar portfolio as you (just have VIU/VEE instead of XEF/XEC). If you have enough money to max out your TFSA/RRSP, I'd do:

1) VAB in RRSP -> low-yield producing (prefer higher growth ETFs in TFSA), bond dividends count as "interest" so are taxed at a higher rate.
2) VCN in non-registered account -> receive a dividend tax credit for holding Canadian companies in a non-registered account.
3) VUN/XEF/XEC in TFSA/RRSP where there's room ->non-registered if no room left

Some people also hold every ETF in each of their accounts so that the allocation is easier to manage (though this is less efficient). If you have enough room to fit it all in your TFSA/RRSP, then put VAB in RRSP and then the rest spread between TFSA/RRSP.

VUN = purchased in Canadian dollars (i.e. don't need to convert funds to USD)
VTI = purchased in USD (i.e. need to convert CAD funds to USD)

Due to agreements between Canada and the US, having VTI in your RRSP means you do not need to pay any withholding taxes that are produced from dividends (as you hold it directly). VUN, you do not hold it directly, so the withholding tax would be taken off automatically before you receive your dividend. Again, its a matter of convenience/ease versus efficiency.

General investing tip: don't underestimate the value of simplicity.
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Sep 2, 2008
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How much are you leaving on the table by keeping bonds in TFSA vs rrsp?
Member
Apr 5, 2017
435 posts
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MikeZ13 wrote: I have a very similar portfolio as you (just have VIU/VEE instead of XEF/XEC). If you have enough money to max out your TFSA/RRSP, I'd do:

1) VAB in RRSP -> low-yield producing (prefer higher growth ETFs in TFSA), bond dividends count as "interest" so are taxed at a higher rate.
2) VCN in non-registered account -> receive a dividend tax credit for holding Canadian companies in a non-registered account.
3) VUN/XEF/XEC in TFSA/RRSP where there's room ->non-registered if no room left

Some people also hold every ETF in each of their accounts so that the allocation is easier to manage (though this is less efficient). If you have enough room to fit it all in your TFSA/RRSP, then put VAB in RRSP and then the rest spread between TFSA/RRSP.

VUN = purchased in Canadian dollars (i.e. don't need to convert funds to USD)
VTI = purchased in USD (i.e. need to convert CAD funds to USD)

Due to agreements between Canada and the US, having VTI in your RRSP means you do not need to pay any withholding taxes that are produced from dividends (as you hold it directly). VUN, you do not hold it directly, so the withholding tax would be taken off automatically before you receive your dividend. Again, its a matter of convenience/ease versus efficiency.

General investing tip: don't underestimate the value of simplicity.
why2) VCN in non-registered account -> receive a dividend tax credit for holding Canadian companies in a non-registered account.
its yield is low.
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slowtyper wrote: How much are you leaving on the table by keeping bonds in TFSA vs rrsp?
This is hard to say, as it depends on your portfolio mix/allocation %, but equities tend to outperform bonds over the long-term, so it makes sense to shelter them in an account where you will not pay taxes in the future vs. one where you will. That said, its better to have them in one of the two accounts (TFSA/RRSP) than in a non-registered account.
melcon wrote: why2) VCN in non-registered account -> receive a dividend tax credit for holding Canadian companies in a non-registered account.
its yield is low.
The yield is generally comparable to most ETFs. Add in the Canadian Dividend Tax credit implications (http://www.huffingtonpost.ca/tea-nicola ... 92974.html) and it is more than enough reason to. I'd need a bit clearer of a question to more fully respond.
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Mar 14, 2017
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MikeZ13 - Thanks for your reply.

I have read that it is important to hold US equities in the correct registered account. So VUN would be an example of that? (since VUN is the Canadian version of VTI I am unsure if that's still considered a US equity). You put RRSP/TFSA. Which makes me think it doesn't matter in your opinion. Can you clarify?

Regarding VUN / VTI. What is better to hold? I can convert CAD > USD using Norbert's Gambit without issue.

Another question I have is what are the risks of these ETF's vs directly owning the shares? I don't mean if the value dips, but counterparty risk.
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401 posts
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Toronto, ON
ZER0DAY wrote: MikeZ13 - Thanks for your reply.

I have read that it is important to hold US equities in the correct registered account. So VUN would be an example of that? (since VUN is the Canadian version of VTI I am unsure if that's still considered a US equity). You put RRSP/TFSA. Which makes me think it doesn't matter in your opinion. Can you clarify?

Regarding VUN / VTI. What is better to hold? I can convert CAD > USD using Norbert's Gambit without issue.

Another question I have is what are the risks of these ETF's vs directly owning the shares? I don't mean if the value dips, but counterparty risk.
VUN is indeed an US equity ETF (as it consists of US companies). As you mentioned, the difference is that VUN is a Canadian wrapped version of VTI, essentially giving Canadians access to buy it on the TSX/in CAD. This is done for convenience purposes and saves Canadian investors on the costs/effort of converting CAD to USD (especially for those who do not know about or understand Norbert's Gambit) to buy VTI.

The downside of holding VUN, is that because you do not hold the original US-listed ETF directly (VTI), you are charged US withholding taxes on dividends every time they are distributed, regardless of which account it is in. If you hold VTI in your RRSP, these dividends will not experience US withholding taxes due to tax agreements between the US and Canada.

As a result, if you buy VUN, it arguably doesn't matter if you hold it in your TFSA or RRSP, as the withholding tax on dividends will apply regardless. If you buy VTI, holding it in your RRSP is the most cost-effective option.

Which is better depends on the person. VTI in an RRSP is the most cost-efficient if you know how to execute Norbert's Gambit and don't mind the time and effort in doing so. If you want to keep it simple and don't mind forfeiting some cost-efficiency in order to do so, VUN is a fine purchase. CCP has some articles on this for follow up.

1) http://canadiancouchpotato.com/2014/02/ ... ing-taxes/
2) http://canadiancouchpotato.com/2010/03/ ... eir-place/

In terms of ETFs vs directly owning shares, it's less about risks and more about feasibility in my opinion. There are over 3500 stocks under VUN. It is unlikely you are going to replicate that type of diversification by purchasing stocks on your own. You will save on the MER associated with the ETFs, but then again, you are experiencing the trading costs of needing to purchase numerous stocks to make up your portfolio. For the couch potato strategy, ETFs are definitely the way to go. If you are interested in owning stocks directly, you may want to look into the dividend growth strategy. I am not very well versed in it, but there is a topic led by rodbarc on this site who is quite knowledgeable in the matter.
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Mar 14, 2017
8 posts
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MikeZ13 wrote: VUN is indeed an US equity ETF (as it consists of US companies). As you mentioned, the difference is that VUN is a Canadian wrapped version of VTI, essentially giving Canadians access to buy it on the TSX/in CAD. This is done for convenience purposes and saves Canadian investors on the costs/effort of converting CAD to USD (especially for those who do not know about or understand Norbert's Gambit) to buy VTI.

The downside of holding VUN, is that because you do not hold the original US-listed ETF directly (VTI), you are charged US withholding taxes on dividends every time they are distributed, regardless of which account it is in. If you hold VTI in your RRSP, these dividends will not experience US withholding taxes due to tax agreements between the US and Canada.

As a result, if you buy VUN, it arguably doesn't matter if you hold it in your TFSA or RRSP, as the withholding tax on dividends will apply regardless. If you buy VTI, holding it in your RRSP is the most cost-effective option.

Which is better depends on the person. VTI in an RRSP is the most cost-efficient if you know how to execute Norbert's Gambit and don't mind the time and effort in doing so. If you want to keep it simple and don't mind forfeiting some cost-efficiency in order to do so, VUN is a fine purchase. CCP has some articles on this for follow up.

1) http://canadiancouchpotato.com/2014/02/ ... ing-taxes/
2) http://canadiancouchpotato.com/2010/03/ ... eir-place/

In terms of ETFs vs directly owning shares, it's less about risks and more about feasibility in my opinion. There are over 3500 stocks under VUN. It is unlikely you are going to replicate that type of diversification by purchasing stocks on your own. You will save on the MER associated with the ETFs, but then again, you are experiencing the trading costs of needing to purchase numerous stocks to make up your portfolio. For the couch potato strategy, ETFs are definitely the way to go. If you are interested in owning stocks directly, you may want to look into the dividend growth strategy. I am not very well versed in it, but there is a topic led by rodbarc on this site who is quite knowledgeable in the matter.
Thanks again for the info. I've read a lot from Rodbarc, he has been very helpful. Ideally, I want to understand the more advanced strategies. But that's something that'll come with time and knowledge, for now, I think the index investing approach is best.

I have read conflicting info on the best holding for VCN, most people seem to recommend TFSA, for me I'd prefer to hold these all in registered accounts as I use my non-registered margin accounts for trading, can you comment further on this?

Right now I think I will be doing:

VCN - 23% - TFSA (maybe non reg)
VTI - 23% - RRSP
XEF - 19% - RRSP
XEC - 5% - RRSP
VAB - 30% - RRSP

When the RRSP overflows I will look at it then.

I am going to go into these slowly not lump sum, even though it may be better, its more a peice of mind for me. I don't like doing something without fully understanding how it all works. And with something like this you're constantly learning. So I'd rather not sit on the sidelines. I am 26 so i have room to make some mistakes and learn a lot along the way.

I'd love to hear thoughts from @Germack as well.

Thanks for all the help.
Deal Addict
Oct 1, 2006
3249 posts
4472 upvotes
Montreal
ZER0DAY wrote: Thanks again for the info. I've read a lot from Rodbarc, he has been very helpful. Ideally, I want to understand the more advanced strategies. But that's something that'll come with time and knowledge, for now, I think the index investing approach is best.

I have read conflicting info on the best holding for VCN, most people seem to recommend TFSA, for me I'd prefer to hold these all in registered accounts as I use my non-registered margin accounts for trading, can you comment further on this?

Right now I think I will be doing:

VCN - 23% - TFSA (maybe non reg)
VTI - 23% - RRSP
XEF - 19% - RRSP
XEC - 5% - RRSP
VAB - 30% - RRSP

When the RRSP overflows I will look at it then.

I am going to go into these slowly not lump sum, even though it may be better, its more a peice of mind for me. I don't like doing something without fully understanding how it all works. And with something like this you're constantly learning. So I'd rather not sit on the sidelines. I am 26 so i have room to make some mistakes and learn a lot along the way.

I'd love to hear thoughts from @Germack as well.

Thanks for all the help.
When it comes to investing, there's a world of difference between good, sound information and information that sounds good. Your financial future depends on knowing the difference.

To answer your question you need to provide more information. How much money do you make? How much do you plan to invest? What's your TFSA/RRSP contribution room? Time horizon, etc....

Your asset allocation plan is based on your personal circumstances, goals, time-horizon, and need and willingness to take risk
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Mar 14, 2017
8 posts
Toronto
Yes, I understand that.

I am 26 years old, make ~$130k a year, TFSA 45k, I think 10k room, RRSP $54k, no room till next year. Time horizon: 25+ years. I would say with this strategy I have medium to high-risk tolerance. I will speculate on other securities and assets in different accounts, looking for this to be where the majority of my investment capital lives.

I was mostly looking for your thoughts on the location of the ETFs but the more I can learn the better.
Member
Apr 5, 2017
435 posts
63 upvotes
ZER0DAY wrote: Yes, I understand that.

I am 26 years old, make ~$130k a year, TFSA 45k, I think 10k room, RRSP $54k, no room till next year. Time horizon: 25+ years. I would say with this strategy I have medium to high-risk tolerance. I will speculate on other securities and assets in different accounts, looking for this to be where the majority of my investment capital lives.

I was mostly looking for your thoughts on the location of the ETFs but the more I can learn the better.
i know its off topic, but just curious what kind of job can make $130k at the age of 26?
Newbie
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Mar 14, 2017
8 posts
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I am a self-employed digital product designer and software developer.
Member
Apr 5, 2017
435 posts
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ZER0DAY wrote: I am a self-employed digital product designer and software developer.
ah gotya!

Self-employed / incorp is the way to go.. otherwise, gov suck up way too many $ from our pocket
Jr. Member
Jul 20, 2009
128 posts
9 upvotes
Montreal
Hi guys,
I am new to couch potato investing. I always had TD mutual funds like TD dividend growth and TD science and tech. I have sold most of it and invested in TD Index e series funds as per couch potato strategy. This is what I have as of today. What do you think of it and how do I improve it further? I know there are still 2 high mer funds in here which have given me pretty good results so I have kept some of it.
I have attached the breakup here.
Thanks,
Raww
Images
  • Screen Shot 2017-06-10 at 12.21.54 AM.png
Deal Addict
Oct 1, 2006
3249 posts
4472 upvotes
Montreal
ZER0DAY wrote: Yes, I understand that.

I am 26 years old, make ~$130k a year, TFSA 45k, I think 10k room, RRSP $54k, no room till next year. Time horizon: 25+ years. I would say with this strategy I have medium to high-risk tolerance. I will speculate on other securities and assets in different accounts, looking for this to be where the majority of my investment capital lives.

I was mostly looking for your thoughts on the location of the ETFs but the more I can learn the better.
The location of the ETFS looks good. Good luck with your investments. If you stick to your plan you will do very well.

Avoid to speculate on other securities. It will likely result in lower returns.
Deal Addict
Oct 1, 2006
3249 posts
4472 upvotes
Montreal
Raww wrote: Hi guys,
I am new to couch potato investing. I always had TD mutual funds like TD dividend growth and TD science and tech. I have sold most of it and invested in TD Index e series funds as per couch potato strategy. This is what I have as of today. What do you think of it and how do I improve it further? I know there are still 2 high mer funds in here which have given me pretty good results so I have kept some of it.
I have attached the breakup here.
Thanks,
Raww
Looks good. I would just move your US equity from TFSA to your RRSP so you can recover the 15% withholding tax on dividends and sell the 2 high MER funds.
Last edited by Germack on Jun 10th, 2017 10:27 am, edited 2 times in total.
Jr. Member
Jul 20, 2009
128 posts
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Montreal
Thanks Germack for your advise.
Newbie
Dec 28, 2016
16 posts
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Germack wrote: Looks good. I would just move your US equity from RRSP to TFSA so you can recover the 15% withholding tax on dividends and sell the 2 high MER funds.
I thought it was the other way around - where US equities are charged withholding taxes in TFSA but not RRSP, no?
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AceDeals wrote: I thought it was the other way around - where US equities are charged withholding taxes in TFSA but not RRSP, no?
You are correct (as long as they are US listed/not held through a Canadian security). Also, withholding taxes are not recoverable in a TFSA. Perhaps Germack mistyped or there is more he can add :)

http://canadiancouchpotato.com/2012/09/ ... explained/
Raww wrote: Thanks Germack for your advise.
The TD US Index-e is Canadian listed, so does not receive the benefits of avoiding foreign withholding taxes, regardless of which account (RRSP/TFSA) it is in. You can refer to the link above if you are interested.
Deal Addict
Oct 1, 2006
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AceDeals wrote: I thought it was the other way around - where US equities are charged withholding taxes in TFSA but not RRSP, no?
Yes you are correct. I meant TFSA to RRSP.
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Oct 24, 2004
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I've maxed out my TFSA in eSeries. I've heard that when you are investing above $50K it shouldn't be in mutual funds, and perhaps in ETFs or something else?

Do I close my e-series and transfer my money elsewhere, or do I start to invest with new money in ETFs?
Can someone give me some guidance into learning more please?

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