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Our TFSA and RRSP Considerations for 2014

Over the last few weeks, I’ve received a number of emails from readers asking questions about Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs).  Here was another recent question, paraphrasing and quoting where I can:

“Love your blog! It has really helped me enter the self-directed investment world.”  Given that it is the beginning of the year, “it would be great to know what stocks or ETFs you are considering for your TFSA and RRSP this year. Keep up the great work!”

Thanks for this email (and the nice words about the blog by the way).  Here are our TFSA and RRSP considerations for 2014.

TFSA

My approach for this account won’t change this year from what we did in 2013 or even the year before.  I’ve written about this a few times on my blog but our approach for this account is to buy and hold Canadian blue-chip stocks and Canadian equity Exchange Traded Funds (ETFs).  That’s it.  For each holding within the TFSA I reinvest dividends paid each month or each quarter to purchase more stock shares and ETF units commission-free.   I learned a long time ago money that makes money makes more money, so once investments are compounding in these accounts I pretty much leave them alone.  My TFSA is fully maxed out and we’re working hard on maxing out my wife’s account later this year.

Equities make up 100% of the TFSAs since:

  • I have many years until retirement,
  • I can accept our equity holdings tanking 30% or more in a market correction, and
  • I’m very skeptical bonds will keep up with inflation given today’s dirt low and prolonged rates.

Over the last year or so we’ve put REITs into our TFSAs.

RRSP

I’m going to sound a bit redundant but my approach for this account is also simple:  buy and hold mostly U.S. blue-chip dividend paying stocks and a couple of international equity ETFs.   For each holding within the RRSP we also reinvest dividends and distributions paid each month or quarter to purchase more stock shares and ETF units commission-free.   Our RRSPs are not fully maxed out yet but we do contribute to these accounts monthly and we’ll likely reinvest a big portion our tax refund here.  We are not interested in maxing out these accounts right away because:

  • We are very lucky to have pension plans at work,
  • We prefer to maximize our TFSAs first every year,
  • We continue to focus on paying down our fat mortgage debt, and then when these things are done,
  • We live a little.

In terms of particular investment recommendations for these accounts, I cannot make any since I’m not a financial professional and furthermore I do not know anything about your (or any reader’s) personal finance situation (debt, risk tolerance, goals, etc.) to offer help.  I can however share my lists of favourite ETFs worthy of your review and consideration:

You can read about my favourite Canadian equity ETFs here.

You can read about my favourite Canadian bond ETFs here.

You can read about my favourite International equity ETFs here.

I intend to update these posts later this year since a few new products have emerged over the last year that probably warrant a look.

Got a question for me?  Comment below or send me an email.  

Filed in: Goals & Planning, Reader Questions

15 Responses to "Our TFSA and RRSP Considerations for 2014"

  1. Nice work on maxing out the TFSA. Not many people can do that these days. You mentioned US blue chip stocks – which ones do you own or are watching? I’m a bit hesitant to enter the US market right now as it seems high. But it’s definitely worth a look for tax purposes as you mentioned because of the div tax credit

    • Mark says:

      Thanks Dan, it’s coming along….

      I own some big blue chippers, JNJ, KO and PG. I consider these “big bonds” in my RRSP even though the purists don’t agree some blue-chip stocks that pay steady dividends are bond-like. Dividend stocks are certainly not bonds, but I like the steady yield from the stocks and the capital upside. You won’t find either from bonds these days. I also own Vanguard ETFs for the diversification.

  2. I found your lists very helpful when looking at my options. I’m trying to max out our TFSAs and RRSPs this year, which may be a bit difficult since we’re getting married and going on a long honeymoon, but we’re still going to try.

    • Mark says:

      Thanks Daisy, glad it provided some insight. Maxing out both TFSAs and RRSPs is some great saving, we’re just not doing enough. A long honeymoon sounds great and I’m sure you’ll have fun!

  3. Peter says:

    You mention you reinvest US dividends in your RRSP commission-free. Do you mean that you DRIP them? My on-line broker (BMO) does not offer DRIPs for US stocks. I therefore assumed (without actually asking) that they weren’t available for US stocks within a tax sheltered plan like an RRSP. Am I wrong?

    • Mark says:

      Hey Peter,

      Yes, to clarify, I DRIP most of my U.S. stocks and most of my Canadian stocks. Some online brokerages don’t allow for DRIPing U.S. stocks using an RRSP, others do. I recall BMO is one whereby you cannot DRIP U.S. stocks in the RRSP, you must take USD as cash. I think at CIBC you can DRIP some U.S. stocks in RRSP, RY the same thing but not all U.S. stocks are on their menu.

      Hope that helps!
      Mark

  4. Paul N says:

    Nice article and I liked your link to you favorite ETF’s as well.

  5. Great article, Mark. Although the TFSA is popular, very few investor use it properly. Over half of investors investing in cash. The banks aren’t helping by marketing them as savings account. Perhaps a name change is in order – Tax Free INVESTMENT Account is my nomination. Does anyone second that?

  6. Peter says:

    Hey Mark, nice article. Glad you maxed out on your TFSA! I am still working on maxing out mine (still quite a bit of room to go), but I will probably be using it to save up for some big expenses in the future. Looking forward to your new ETF reviews.

    Cheers.

    • Mark says:

      I did indeed Peter, but I kinda cheated, I maxed the account out by moving non-reg. funds into the TFSA. I need to ensure my registered accounts are maxed out before using the non-registered to maximize the tax benefits.

      Yes, I have to get on those posts about my favourite ETFs! Stay tuned and thanks for reading.

  1. […] Mark from My Own Advisor explains the approach he takes to investing and contributing to his RRSP and TFSA. […]

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