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Reader Questions – Saving and Investing Stuff

I receive a number of emails every week about my approach to saving and investing.  I’ll be the first person to acknowledge my investment strategies are not perfect but I feel, over time, the plan is good and it’s working for me. Here are some recent questions I received and what I shared with readers via email, for today’s post.

Mark, it seems like you put Canadian stocks and Exchange Traded Funds (ETFs) in your Tax Free Savings Account (TFSA).  Does that become reportable income?

Yes, you are correct, this is what I own in that account but no, it is not reportable income.   If my Canadian company pays a dividend, and that company is held inside my TFSA, the dividends are not taxed.  Same goes with the distributions from my Canadian ETFs in that account.  I think this is what makes the TFSA such a killer account, and that’s just for starters.  There is more reading about the TFSA on my site here.

Did I just read on your site that you don’t invest in bonds anymore?  If this is the case, why have you dropped bonds out of your portfolio?

That is also correct.  I don’t invest in bonds or bond ETFs anymore.  I only do this because I’m fortunate to have a pension plan at work so I consider that a “big bond”.  I can appreciate many people don’t have a workplace pension so this might not be for them; investors might need some bonds in their portfolios.  Without bonds in my portfolio, this means I’m taking on more equity risk, but I’m comfortable with that for now.

Once I max out my tax sheltered accounts (RRSP and TFSA), I’d like to put the rest into a non-registered account.   Now that I’m hooked on your blog I’ve learned it could be an idea to hold Canadian dividend paying stocks non-registered.  Does that make sense from a tax perspective?

Yes, thanks to the Canadian dividend tax credit, it may make sense for an investor to hold Canadian dividend stocks in a non-registered account.  Holding stocks directly though, there are risks.  These risks might not be for everyone.  I would strongly consider learning more about indexing first, keeping your fees low, diversifying across sectors, companies and countries before diving into stock selection.  I cannot offer any specific financial advice on this site for many reasons but I would encourage you to seek out financial professional help if you’re unsure about what to invest in and where, including stocks.

I’ve been reading more about indexing but I can also see the benefits of dividend investing.  I’m torn.  Can I do both?  Can I follow a Canadian Couch Potato approach in my RRSP and TFSA and do some dividend investing as well?

It’s really up to you and your investing plan.  I invest in indexed ETFs for many great reasons and I’m also comfortable with investing in some stocks directly.  This is based on my investment plan and goals.  Ultimately you need to decide what works best for you.  I think if you’re just starting out, following a Canadian Couch Potato (CCP) strategy is a very smart move.  If you’re not willing to commit to a stock, or stocks, for at least 5-10 years then a) you shouldn’t own any and b) you should likely go with a CCP approach.  The reality is the best investment plan is the one you can stick with over time.

Got some questions for me?  Drop me an email or add a comment below!

Filed in: Reader Questions

17 Responses to "Reader Questions – Saving and Investing Stuff"

  1. Paul N says:

    Good questions and replies.

    Your last question – I tend to do both as well. I also however hold a popular Mutual fund that has a 15 year return average of 8.4%. We all love to bash funds but it’s hard to let go of an investment when it has been a consistent rock for you. I would also add that the person asking that question also considers other avenues of income. Like rentals, side business etc. Just to diversify their income streams and not focus on only the 2 mentioned.

    • Mark says:

      Hey Paul, thanks for the comment. I don’t think I’d be comfortable with a stock-only approach, at least not yet. I feel indexed products make sense for so many reasons, which is why inside our RRSPs, most of our products are indexed for long-term growth and will deliver market-returns. The use of the TFSAs and non-registered account is a different story since I see the holdings inside these accounts as income-generating assets that I hopefully never sell; the capital should churn out income, I can spend the dividends and distributions in retirement; rinse and repeat for the foreseeable future in a tax-free and tax-efficient way.

  2. Liquid says:

    Very thoughtful answers, Mark :) Not investing in bonds because of a future pension shows that everyone’s retirement situation will be different. How do you feel about owning preferred shares though? I heard they often distribute more income than dividend stocks, but don’t qualify for the Canadian dividend tax credit. Maybe it’s something one can look into once the person is retired and in a lower income tax bracket.

    • Mark says:

      Thanks Liquid, although some financial recipes can be similar I think.

      I’m not a huge fan of preferred shares, with the less potential for appreciation; this is why I like equities in the first place :) It’s something to consider at some point, but just not right now for me. You? Are you into preferreds?

  3. Inderpreet Kang says:

    Mark,

    I have been following your blog sometime. You have been great help in teaching us about saving and investing. I am also thankful to other bloggers who shared information with us all. You have rightly said that its up to one’s investment plan. Long term and diversification are two important factors in investing. We have decided to invest in maximum of 10 dividend paying stocks in different sectors and don’t worry about for next 20 years. But keep ourselves update to date on the each companies progress. We will revisit our investment strategy every quarterly to make sure that we are own right track

    Again Thanks for sharing your knowledge!!!

    Inderpreet Kang

    • Mark says:

      Thanks Inderpreet…I’m a big believer in long-term thinking when it comes to investing and not reacting too much to any short-term pain. Diversification is critical. 10 dividend paying stocks in different sectors is probably OK diversification without any other investments but it really depends on your risk tolerance. My comfort-zone rests with about 40 stocks (30 CDN, 10 US) and everything else indexed.

      I will certainly keep readers updated, I enjoy running the site.

      • Inderpreet Kang says:

        Mark,

        Every individual has different risk tolerance and hope its pays well. I would like to invest in US companies in near future but following Canadian companies so far. We may have different strategy next year who knows.

        • Mark says:

          Sounds good Inderpreet, you mentioned what I was thinking: Every individual has different risk tolerance and to your point, needs to select the investing products that marry that risk profile.

          Thanks for the comment.

  4. tawcan says:

    Great answers, having a pension definitely means you can forget about bond… wish I have a pension myself. :)

    I understand that you’d rebalance index funds regularly, do you rebalance your dividend stocks at all?

    • Mark says:

      Yes, pensions are good as long as the company keeps you employed :)

      I do rebalance my stocks a bit, I try to find a laggard stock in another sector to rebalance the portfolio. In this market, that’s a difficult exercise, everything has had a runup in price it seems. So, I have to be patient and wait for a correction.

  5. I had a pension plan at work, but now that I have switched jobs I no longer am paying into it. Would you recommend I add bonds back to my portfolio? I don’t have any (bonds bore me.. ha ha), and for the most part my portfolio is growing nicely.

    • Mark says:

      Tough call. Can you ride out portfolio drops of 30% or more? If not, then some bonds would likely help; they have been called parachutes for portfolios for a good reason. I think it also depends on your time horizon and investing objectives. If a very long horizon, 30+ years, then potentially few bonds are needed. Furthermore, what are your investing objectives? Personally, mine are cash flow, passive income and growth. For me, this implies stocks, dividend stocks and broad-market equities are suited for me.

      Not easy questions to answer, but very important ones I think Daisy.

  6. Poor Student says:

    Interesting to see how you plan your investment. I’m still reading about the investment option that works best for me, so your answers are quite helpful. Thanks for sharing!

  7. Have you ever thought about creating an e-book or guest authoring on other websites?
    I have a blog based on the same subjects you discuss
    and would love to have you share some stories/information. I know my audience would appreciate your work.
    If you’re even remotely interested, feel free to send me an email.

    My web blog yorku.academia.edu

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