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.
(Questions in bold, my answers follow!)
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, broad market 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!