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.
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.
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.