Weekend Reading – Best dividend ETF, withholding taxes, Slow FI, giveaways, resolutions 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 answered the question: When do you think it’s a good time to invest, Mark?
And I launched a multi-month giveaway where you can win FREE TurboTax software to help you with your tax needs.
As part of that giveaway, even if you don’t win the free software codes and want to get started on your taxes now, don’t forget just by being a fan of this site you can take advantage of my 15% discount on TurboTax Canada software until April 30, 2020. Awesome right?
Don’t forget!!!
To help kick-start your 2020 savings, Oaken Financial is giving away a GIC with an opening value of $500 to one lucky winner! How to participate? Simply fill out all required information on this link (takes 1 minute).
Legal terms and conditions so you know!
Oaken’s contest is open to legal residents of Canada (excluding Quebec) who are over the age of majority in their province/territory at the time of registration. Starts January 13, 2020, 12:01 a.m. ET and ends on January 31, 2020 at 11:59 p.m. ET. Prizes available to be won: 1 x Oaken Financial GIC with an opening value of $500. Enter and good luck!
Weekend Reading
I won’t be starting my tax return just yet but I hope to start putting things together, getting organized, in a few weeks.
All the best for your weekend and enjoy these articles!
Mark
My friend the Dividend Growth Investor shared what he feels are the best dividend ETFs to own in your asset accumulation years. Hard to argue with this, from his post:
“In conclusion, I believe that ETF’s on the S&P 500 index or the Total Market Index can be good ETF’s for busy dividend investors in the accumulation phase. Unfortunately, their current yields are pretty low around 2% as we speak.
Some investors believe that they can take that 2% dividend yield, and then sell 1% – 2% of their stock holdings every year. I do not recommend having to sell shares to fund retirement. Selling shares can increase the risk of running out of money in retirement, due to sequence of return risk. If you have to sell when prices are low during the next bear market, you may have to sell a lot more shares, and increase your chance of running out of shares to sell. As your number of shares declines, you are increasingly betting that a rising tide will bail you out. While stocks usually go up over long periods of time, they have also gone nowhere for extended periods of time too. If you have to sell shares while prices are low, you are depleting your asset base. This is speculative behavior, and not how an investor should operate.
For retired dividend investors, who are not interested in selecting their own investments, I believe that two good choices today include the Schwab Strategic Dividend Equity ETF (SCHD) and the Vanguard High Dividend Yield ETF (VYM). Both yield close to 3% today, or have at least reached those yields fairly recently. They are decently diversified, and have long histories of real money performance. The retired investor could swap their plain vanilla index fund for one that is focused on current income. This is easily done in a retirement account. However, it will be more difficult and costly to implement in a taxable account, because such a transaction could trigger costly capital gains. Hence, if you are interested in investing in funds,be advised that a retirement account is the best account type for such investments.”
This was well worth the time to learn more about foreign withholding taxes, even if Justin Bender seems a bit obsessed over them! I liked Justin’s summary on what to hold where:
- Use Canadian-listed low-cost ETFs like VUN, XUU, ZSP or others for your TFSA if you want foreign exposure. I provided a list here of other considerations for how to diversify your Tax Free Savings Account (TFSA).
- Over time, use U.S.-listed low-cost ETFs like VTI, ITOT or others in your Registered Retirement Savings Plan (RRSP) once you have enough assets saved up.
Kari from Money In Your Tea was kind enough to put my goals atop of her winter roundup of personal finance goals list as inspiration to others. After reading this list, I was very impressed how others are approaching their dreams and ambitions. I hope they nail it.
Enjoy your journey. Life is previous. Whether you call it “Slow FI” (a more gradual path to financial independence) or not it really doesn’t matter. These words were a good reminder for all via The Fioneers on Tawcan’s site recently:
“I’ve come to understand that the purpose of financial freedom is not to retire early. It’s to live a life you love that provides you with meaning and purpose. When you have a life you love, there’s little reason to sprint toward early retirement.”
Smile & Conquer has re-framed her 2020 goals as more of a bucket list to be successful.
GenYMoney shared her great, motivating, long-term goals: “My goal is $35,000 in dividend passive income by age 40, so in about 4 years, and a $1,000,000 investment portfolio (or liquid net worth).”
Her post made me think about how I might share our news when we reach that big $1 M investment portfolio milestone ourselves. What should I tell the world? How?
I’m really not the personality to broadcast this stuff endlessly so I can get on CNBC or other yet it is a very significant financial milestone for us. With the stock market continuing to climb, even slightly higher this year, it is pretty much inevitable we will get there in a few months. Readers, what say you?
Dale Roberts wrote about the lost decade for U.S. stocks.
MoneySense answered the question: should you consider an RRSP loan? Personally, unless you have no consumer debt (i.e., no credit card debt, no car payments or any other loans beyond your mortgage) I wouldn’t even bother. I mean, how much debt do you really want to take on?
Thanks to her Twitter feed, I found this article. Phia from Freedom 101 decided ditching the mortgage was one of the best decisions they ever made. Well done!
How To Save Money compared the airline loyalty programs. A solid read.
By now you know you can contribute another $6,000 to your financial future self via the Tax Free Savings Account (TFSA).
To get help, check out my Deals page where you can get cash back when you invest with Bank of Montreal, you can get a $50,000 ETF portfolio managed fee-free for a year with ModernAdvisor and, you can save big with one of Canada’s low-cost investment leaders: Questrade.
Remember, there are some easy, simple, all-in-one funds for your TFSA right here!
Reader question of the week (adapted for site):
Hi Mark,
I don’t know if you respond to ‘cold call’ emails but just in case …am I correct in thinking (remembering?) that you are not a big fan of bond funds and bond ETFs? Why?
I have enjoyed your blog for a while, but mostly via links from elsewhere, but I’m now a full-time subscriber!
Thanks for your answer, would love to hear it.
Great question. Yes, I did own bonds including bond ETFs many years ago but I have since changed my thinking to be more aggressive with my portfolio via owning dividend paying stocks for income and growth, and owning low-cost ETFs for additional equity diversification.
You can read about my stock holdings here.
You can read about some of my favourite ETFs here.
Now, the biggest reason I no longer own any bonds or bond ETFs is because beyond our desired > $1 M investment portfolio (which we’re getting very close to!!!!) I have a small workplace pension and so does my wife. So, that’s future fixed-income I/we can rely on. Very bond-like! So, because I consider my pension a BIG bond then I see no reason why I need to hold bonds at this time.
The other reason I avoid bonds right now? My investment timeline is measured in decades. So, I know I should get the best long-term returns from equities over bonds. Your mileage and risk tolerance may vary.
Happy investing!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
The discussion of how/if to incorporate bonds into a portfolio is an interesting one. Mark’s comment, bringing his defined benefit pensions into the discussion, is an important consideration – that is a ‘bond like’ element that should impact on the decision taken regarding asset allocation. One other aspect which is not often touched upon is how you should incorporate the risk and return characteristics of your human capital into the equation. How we convert our human capital into financial capital can also be more ‘bond like’ or more ‘equity like’ and should also be a consideration when an investor is looking at their asset allocation. Moshe Milevsky wrote an excellent book that looks at this issue ‘Are You a Stock or a Bond’ – it is well worth the read.
The concept of human capital is often overlooked Larry. Great point.
I still owe you an email so don’t worry, I haven’t forgotten about you and our interview!
How exciting to get so close to your goals. Well done. I totally agree with your comments re: bonds vs equities. Did a quick analysis of my own retirement portfolio and am currently at 76% fixed income (pension and CPP 1). In a few years I will over 83% fixed income. I count CPP and OAS as fixed income portions also therefore all my personal investments are dividend stocks and dividend paying ETF’s. No bonds or GIC’s.
I did the RRSP loan thing a few times. Used my HELOC (3%-4.5%) and generated 30% plus refund. Used the refund to pay down the loan and paid off the rest over a short period. Bought solid dividend payers with the refund money.
Mark is right. How much debt do you want to carry? I am comfortable carrying debt in the form of house and HELOC while lots/most people aren’t.
How true Gruff. I think once my mortgage is dead I could consider some form of leveraged investing, but not now!
Thank you for the mention Mark! I appreciate it.
I think that simplicity may be a good selling point on those ETFs/Funds, which I may have overlooked before. Plus, the SPY/VTI’s of the world are default choices for our 401 (k) plans in their mutual fund form, so they are not bad choices.
Have a nice weekend!
DGI
Hard to beat SPY, VTI and I’m a big fan of VYM for income and growth. IVV is a solid stud as well. If you’re not going to invest in a basket of dividend growers, I think index investing is the way to go.
Great to hear from you. I owe you an email reply!
In a few months! Congratulations, that’s great. Looking forward to reading your big news. Celebrate with some wine on your nice patio? 🙂
Just “some” wine? 🙂 Yup, very, very close GYM.
Some great reads there Mark!
Thanks very much 🙂
Mark
Mark
I have a question about buying stocks for my TFSA and my RRSP. Is it okay to have the same stocks in each or should I be looking for different stocks in each. For example I have Telus in my RRSP and I was planning to buy it for my TFSA as well.
Also I have Brookfield in my TFSA that I bought under the Canadian symbol but my account shows it as being international. Am I being charged the 15% withholding tax?
Thanks
Terry
Absolutely Terry. I really don’t see any harm in owning the same stocks or ETFs across multiple accounts. It really all boils down to your investment risk and need/desire for diversification. In fact, you can simply own one (1) fund these days and own thousands of stocks from around the world. VEQT is just one example. Incredible really.
FWIW, I know many investors that hold Telus or other CDN dividend paying stocks in their TFSA, RRSP and non-registered accounts. But, they also happen to hold many other stocks for diversification.
In terms of Brookfield companies, it’s confusing and complicated. Most of the issues are triggered by the fact they pay dividends in USD $$ and they are interlisted companies on the CDN and U.S. stock markets.
Honestly, I would email their investor relations department AND contact your brokerage for your own piece of mind since it really depends on the company you own and what your brokerage does or doesn’t do with their dividends. Here are interesting threads on the matter.
https://www.theglobeandmail.com/globe-investor/investor-education/help-my-canadian-stock-pays-a-us-dividend/article29499346/
From Brookfield:
https://bpy.brookfield.com/stock-and-distribution/tax-information
OK, G&M:
https://www.theglobeandmail.com/investing/education/article-one-stop-etfs-are-great-despite-the-tax-drag/
“Brookfield Infrastructure Partners LP (BIP-UN) declares dividends in U.S. dollars. Do I still get the Canadian dividend tax credit? And is it better to hold the units on the U.S. or Canadian side of my brokerage account?
BIP is a Bermuda-based limited partnership and its distributions do not qualify for the Canadian dividend tax credit. For 2018, its distributions consisted of Canadian interest, foreign dividends and interest, other investment income and capital gains. (The tax characteristics of BIP’s distributions are provided on a T5013 slip issued to unitholders and are also listed on BIP’s website under “tax information.”)
Although BIP (and other Brookfield Asset Management Inc. companies) declare distributions in U.S. dollars, if you hold the units on the Canadian side of your account you will receive the distribution in Canadian dollars. The good news is that, because the Canadian dollar amount is determined using the Bank of Canada’s closing exchange rate on the record date of the distribution, you will avoid the stiff currency conversion costs that most brokers charge. However, if you hold BIP on the U.S. side of your account, you may face these currency costs because some brokers convert the distribution from Canadian dollars back to U.S. dollars. So, in such cases, it’s better to hold BIP units on the Canadian side of your account. (Thanks to reader A.E. who blogged about this here.)
One final note on BIP: Several readers have reported receiving a U.S. Schedule K-1 tax-form and are wondering whether they have to file a U.S. return. BIP’s website indicates that Canadian unitholders can, in many cases, ignore the Schedule K-1. “We are required to use reasonable efforts to send a Schedule K-1 to all unitholders (not just U.S. residents). Consequently, Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen),” BIP says. If you are unsure of anything, consult a tax professional.”
Hope that helps? 🙂
Mark
Absolutely Terry. I really don’t see any harm in owning the same stocks or ETFs across multiple accounts. It really all boils down to your investment risk and need/desire for diversification. In fact, you can simply own one (1) fund these days and own thousands of stocks from around the world. VEQT is just one example. Incredible really.
FWIW, I know many investors that hold Telus or other CDN dividend paying stocks in their TFSA, RRSP and non-registered accounts. But, they also happen to hold many other stocks for diversification.
In terms of Brookfield companies, it’s confusing and complicated. Most of the issues are triggered by the fact they pay dividends in USD $$ and they are interlisted companies on the CDN and U.S. stock markets.
Honestly, I would email their investor relations department AND contact your brokerage for your own piece of mind since it really depends on the company you own and what your brokerage does or doesn’t do with their dividends. Here are interesting threads on the matter.
https://www.theglobeandmail.com/globe-investor/investor-education/help-my-canadian-stock-pays-a-us-dividend/article29499346/
From Brookfield:
https://bpy.brookfield.com/stock-and-distribution/tax-information
OK, G&M:
https://www.theglobeandmail.com/investing/education/article-one-stop-etfs-are-great-despite-the-tax-drag/
“Brookfield Infrastructure Partners LP (BIP-UN) declares dividends in U.S. dollars. Do I still get the Canadian dividend tax credit? And is it better to hold the units on the U.S. or Canadian side of my brokerage account?
BIP is a Bermuda-based limited partnership and its distributions do not qualify for the Canadian dividend tax credit. For 2018, its distributions consisted of Canadian interest, foreign dividends and interest, other investment income and capital gains. (The tax characteristics of BIP’s distributions are provided on a T5013 slip issued to unitholders and are also listed on BIP’s website under “tax information.”)
Although BIP (and other Brookfield Asset Management Inc. companies) declare distributions in U.S. dollars, if you hold the units on the Canadian side of your account you will receive the distribution in Canadian dollars. The good news is that, because the Canadian dollar amount is determined using the Bank of Canada’s closing exchange rate on the record date of the distribution, you will avoid the stiff currency conversion costs that most brokers charge. However, if you hold BIP on the U.S. side of your account, you may face these currency costs because some brokers convert the distribution from Canadian dollars back to U.S. dollars. So, in such cases, it’s better to hold BIP units on the Canadian side of your account. (Thanks to reader A.E. who blogged about this here.)
One final note on BIP: Several readers have reported receiving a U.S. Schedule K-1 tax-form and are wondering whether they have to file a U.S. return. BIP’s website indicates that Canadian unitholders can, in many cases, ignore the Schedule K-1. “We are required to use reasonable efforts to send a Schedule K-1 to all unitholders (not just U.S. residents). Consequently, Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen),” BIP says. If you are unsure of anything, consult a tax professional.”
Hope that helps? 🙂
Mark
For me in the accumulation phase, it’s not the value of my portfolio that matters. It’s how much dividend I am getting that is important. Higher portfolio value means stocks are more expensive to buy. I rather stocks stay cheap so that I can buy more with the same amount of money.
I hear ya. I’ve been focused on increasing my passive dividend income for 10 years now. A new milestone to report next month but suffice to say, with that income via TFSAs x 2 + non-reg., AND some RRSP assets to withdraw eventually I feel we are getting close to working part-time in another 3-5 years.
Can’t wait!
Mark
Working part time is sweet. It gives us more time to enjoy life while maintaining some work. My work is stressful and I opted for part time work for the past few years and will continue to do so till I retire. I guess I am on the slow FI route. Working while having personal time for myself.
Sounds like a dream Rn 🙂
What what it’s worth I think you definitely need to let your readers know when you hit $1mil. We have been following your journey along with you, and personally would love to celebrate this with you.
I’m sure that you’re so close and can’t wait to hear when you hit that milestone. Onward and upward.
Very close! All the best Maria and thanks for the support – have a great weekend.
Hey Mark! Thanks for including me in your weekend reading. I always enjoy following the reading trail to other blogs you write about.
Best wishes and enjoy the weekend!