Weekend Reading – Afraid of a bear market, 4% rules, embracing slow FI and more #moneystuff
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
Earlier this week, I published these articles:
This was our update to financial freedom update. Getting closer to realizing a major milestone!
Thanks to reader questions and follow-ups on various ETF posts over the last few months, I decided to update previous content on my site and share what I believe are the top dividend ETFs from Canada, U.S. and to hold international stocks from. Based on the distributions from these ETFs, I believe if you own a few of these products you can essentially earn cash for life. Spending the distributions (only) is like having a part-time job from your portfolio – forever!
On that note, GenX, what are your income stream plans for semi-retirement or retirement?
As a millennial just starting out with investing how are you going to invest to earn money from your portfolio?
As always, if you have questions about my approach or other investing questions please leave me a comment or drop me a line via my Contact page. I will try and get to your email as soon as I can and in some cases, I will consider publishing your question (and my answer) on this site!
Kyle Prevost wrote a monster post about the 4% rule on Million Dollar Journey. I personally think this rule is “safe” (3% is very, very safe in fact) as long as 1) you’re close to 100% equities and 2) you intend to own a basket of mostly dividend paying equities or dividend ETFs. I have plans to talk to a Certified Financial Planner about what he thinks about the 4% rule and other matters soon.
Reverse the Crush is embracing a slow path to financial independence. This is something I can relate to since if my wife and I really, really wanted to be financially independent, we could have made the leap already by not owning a condo and just renting a small apartment here in Ottawa. That said, home ownership was important to us; a place to call home and therefore more years of work are required to vanquish the debt dragon.
We did downsize and that’s been a huge enabler to simplifying our life and home – which is why you should at least consider downsizing at some point to weigh through your own pros and cons of doing so…
The slower path to financial freedom is also an approach that aligns to what The Fioneers write about and are passionate about, they embrace Slow FI.
The BIG ERN (Early Retirement Now) site pondered who is afraid of a bear market? After meeting him at FinCon this year, I doubt he’s afraid of any market. He invests rather wisely and rather well. Maybe I can have him on the site in the coming months…
Tawcan interviewed some fellow Vancouverites who retired early.
Early retiree Tanja Hester wrote about blogging less and embracing some new life rhythms as she and her husband continue to adjust to a new routine. In reading this article, I suspect this is something that many couples are going to grapple with when it comes to any retirement. The emotional and psychological preparedness that needs to go into retirement at any age is probably more important than the financial part…and it’s not talked about very much by financial pros at all.
Nice to see Telus increase their dividend this week. We own a few hundred shares and all that dividend income remains tax-free!
Reader question of the week (adapted for site):
I relocated to Toronto, Canada a couple of years ago and I’m trying to be tax efficient with my investments as I learn more. Specifically, what are your thoughts to put U.S. equity ETF IVV (you have this in your top U.S. ETF list on this page I know….) in a TFSA or taxable account, if my RRSP is already maxed out (with VYM or SCHD)?
I would just like your point of view on such U.S. ETFs inside the TFSA or taxable account.
Thanks so much and keep up the great work.
Wow, great, detailed tax-efficient question. Savvy investor…
First up, congrats on the maxed out RRSP. That is a significant accomplishment for any investor. I think VYM or SCHD are great funds for both income and growth.
When it comes to tax efficiency, I’ve learned and try to practice the following when it comes to asset location:
- Non-registered account: Canadian dividend paying stocks.
- TFSAs: Canadian dividend paying stocks and Canadian REITs.
- RRSPs: U.S. dividend paying stocks and U.S.-listed ETFs.
In that article, you’ll see that if you hold IVV in a taxable account, that is, a U.S. ETF that pays low-distributions that is rather tax-efficient. Ideally, the most efficient way to hold U.S. assets in a taxable account would be to own U.S. stocks or an ETF that pays no dividends or distributions.
When you hold U.S. stocks (or ETFs) in a non-registered account:
- There is 15% U.S. withholding tax off the top AND
- because U.S. dividends don’t qualify for the Canadian dividend tax credit, you’ll pay tax at your marginal rate on the full amount of the dividend. S. dividends held in a non-registered account are taxed like interest income. So, if you’re going to hold any U.S. assets in a taxable account – hold stocks that pay no dividend and very little dividends or distributions. Thankfully, for U.S. stocks in non-registered accounts, you get a credit for the amount withheld when you file your tax return. This credit can be applied against Canadian income taxes so in most cases that leaves you square—providing your Canadian tax rate is at least 15%.
So, should you own IVV inside your TFSA or taxable account?
I can’t tell you but what you’ll have to decide is if you want to forgo the 15% U.S. withholding taxes inside your TFSA to own IVV (likely lower than your tax rate right now?) or apply for the foreign tax credit every year you own IVV in a taxable account, since it is efficient there in the first place.
All the best and thanks for being a fan of the site. I encourage you to tell others about it!
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Have a great weekend!