Weekend Reading – Disappointing TFSAs, moving survival guide, $100,000 in one account, 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.
I got back into some blogging rhythm this week after some very busy weeks associated with our condo move.
Earlier this week, I wrote about:
Any plans for the weekend?
We have a family reunion on my side this weekend to look forward to – which is always great. Next weekend, there is a gathering with my wife’s family. Also, always fun. This means we have some relaxing times ahead after a hectic month or so. Summer is for fun and I’m glad we’re getting to enjoy it before it’s gone far too soon in Ottawa!
All the best to you and see you in the comments section on the site.
Rob Carrick mentioned TFSAs have been a disappointment getting Canadians to stash more cash. While I agree with his premise, I know for a fact they have been an absolute gift for my wife and I. Thanks to investing in our basket of Canadian dividend paying stocks, we might cross a very significant six-figure milestone in 2020 thanks to years of investing inside these tax-free accounts.
The Dividend Guy shared updates on his entrepreneur life – a couple of years after quitting the corporate life as a private banker. Kudos for following your passion Mike.
MoneySense answered a reader question: is it safe to keep more than $100,000 in one account?
Since other readers have asked about this post – I’m re-posting it:
Interesting podcast here about when good intentions go bad. I particularly liked the part of the interview when social psychologist Jonathan Haidt discussed the merits of seeking out people who might disagree with you – it’s an important facet of learning to help you expand your thinking.
Always nice to see how Canadian dividend all-stars are performing here.
Dale Roberts from Cut the Crap Investing highlighted some reasons for owning Canadian and international REITs in your portfolio. For Canadian content, he wrote: “Canadian REIT exposure is quite easy. The core Canadian REIT approach is covered by Vanguard with VRE, iShares with XRE and BMO offers ZRE.” While true, instead of owning REITs ETFs I’ve largely unbundled these funds and own the top-5 or more REITs directly. This way, I own the same companies for income and growth AND I save on money management fees.
Image courtesy of iShares.
Jon Chevreau wrote about where to put your emergency fund. Personally, we use a high-interest savings account. It’s simple, we can get the money whenever we want; no tax complications really (i.e., unlike RRSP withdrawals) and it’s safe (insured by CIDC).
Reader question and email this week (information adapted slightly below):
I really enjoy your site. I have a few questions:
- Is it ok to hold VGRO ETF under TFSA? I wonder about the tax implications since some of the ETF holdings hold U.S. stocks? I thought it was a better idea to hold U.S. stocks or U.S. ETFs inside an RRSP as not to incur any withholding taxes?
- In general, should I even be concerned about the timing of buying the VGRO fund? Should I do it at the beginning or mid or even end of the year?
Would love to get your insights.
Thanks for your emails and questions – again – keep them coming folks.
Using VGRO and any all-in-one funds
First up, I can’t offer direct advice for many reasons, but I can tell you what I’ve learned and how I apply those learnings to my personal portfolio (or not)!
Whether it’s “OK” to hold any all-in-one fund or any security for that matter is really a personal decision – which I know may not be easy for any beginner or even seasoned investor!
What I can say is: have a plan before products.
Here is what I mean in these posts:
So, that said, tax implications with VGRO? There are! But they are minor in the big picture.
You see, because VGRO has fixed income (20% bonds) and some (80%) equity, there will be inherently tax implications imposed by the U.S. for Canadian-listed ETFs like VGRO that hold U.S. assets inside Canadian funds. The bond component is mostly tax inefficient so best to keep VGRO inside the TFSA or RRSP vs. any non-registered account for sure. With the equity component for growth, I think VGRO inside your TFSA is a great fit. Why? Save up your maximum TFSA contribution for January each year, make one purchase, and you’re done!
Because U.S.-listed ETFs are very tax efficient inside your RRSP, I would also be inclined to reserve that account to put U.S. stocks or U.S.-listed ETFs that are NOT subjected to foreign withholding taxes.
However, for simplicity and for avoiding Canadian to U.S.-dollar currency conversions, VGRO or really any “GRO” all-in-one ETF can be a very solid choice for your TFSA or RRSP.
Timing your purchase – should you be concerned?
I mean, of course it’s great to buy more VGRO or any other major equity holding when the market is tanking (since VGRO is 80% equities) but based on my experiences and knowledge, very, very, very few people (meaning almost nobody) can “time the market”.
So, why bother.
Instead, set up an automatic contribution plan for whatever amount you can into your TFSA (or RRSP) diligently, wait until you have a few thousand bucks inside the account (to keep your trading costs low), then make your VGRO purchase. Rinse and repeat over 20-30 years and wake up wealthy.
As you know by now, all the income and growth inside the TFSA is tax-free. Incredible but true!
All the income and growth inside the RRSP is tax-deferred. Still amazing.
Got a question for me? Fire away in response to this post or flip me an email. I might just answer your questions in a future Weekend Reading article!