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:
My moving survival guide – what to expect when you’re expecting to move.
I shared an update on our 2019 financial goals (where we busted our budget).
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.
Mark
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.
(This is how we invest inside our TFSAs).
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:
What are the best low-cost ETFs for my RRSP?
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.
You can read more about how I’ve taken this approach for my entire Canadian portfolio here.
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):
Hi Mark,
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:
How to get started with investing.
What should my financial plan cover?
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?
Heck no.
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!
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.
Mark: I just wanted to thank you for your hard work in blogging financial wellbeing for the average Canadian. Having been in banking myself for about 20 years and both of my parents were bankers at some point in their lifetime, it deeply troubled me how illiterate the average Canadian was on following simple principals to create wealth. It ranged in 2 extremes in my experience… people drowning in debt from car, credit card and house payments, relying on the government to take care of them in retirement etc, to people wanting to get rich quickly in some sort of scheme.
I deeply appreciate this balanced approach you take to building wealth slowly and have happily passed your site on to trusted friends who are eager to learn. In my experience a Canadian family can create tremendous wealth and financial freedom and flexibility over a 10-15 year period if they do things wisely and with good council. Proverbs 15:22 says “plans fail for lack of council but with many advisors they succeed”! This is a hearty endorsement of your site and advice. Your friend Boyd in London Ontario…
Great post Boyd. I believe it, and I agree Marks site does a great service financially to those who care and pay attention.
🙂
Geez Boyd – comments like this make my day!!!
Well, we’re certainly not “there yet” for any tremendous wealth but having passed the $1 M net worth mark by age 40 was pretty good and a clear sign my wife and I were doing more things right than wrong.
Yes, boring and balanced is my approach but I learned a very long time ago from some very smart people that’s all you really need to do – get debt under control and build wealth eventually via stock market investing. Onwards and upwards…
Again, thanks for those kinds words and sharing the site with others!!
Mark
TFSAs are a great addition to investing account options for Canadians. It’s unfortunate many people do not take advantage of them or RRSPs at all or to any large extent. Like all or most people visiting Marks blog Icontribute to them fully, even in retirement. I am also of the opinion the current structure for them is wrong. They should be income tested re other government programs. This would be more fair and save money. A cap at some point may make sense in light of demographics and a growing government penchant (or perhaps addiction to getting elected) for spending increases that ultimately need to be paid by taxes. Large TFSA balances will likely create a future crisis. Government has collected their taxes from employment income and before TFSA contribution but many years will go by with retirees that won’t be paying tax on withdrawals. Unfortunately governments usually are unable to forsee this or choose not to. End rant.
I am not sure what Rob is talking about with RRSP withdrawals needing forms or not being able to be done instantly online. I click transfer funds in my RRSP acct.; enter amount (gross or net) and enter. Funds transfer to another acct. Essentially the same as any funds transfer between a chequing or savings acct. Tax receipt issued early next year…. Could not be easier. Yes, there are witholding taxes (stiff?) but one must remember this was once tax free money and the “stiffness” depends on size of withdrawal and is reconciled at tax time. In the exact same way TFSA money was contributed after paying (stiff?) taxes. Same net unless your retirement income is lower. Then the RRSP pulls ahead. With RRSPs the government took the hit up front and gets paid on the back end.
I suspect they will be income tested at some point. Not sure when but I will be happy to see them continue as is for some time given I suspect most Canadians don’t have the discipline to not touch these things and not spend the money from them.
I’m totally fine with the RRSP structure. Not sure why so many people complain about the withdrawal withholding tax. The government just wants their money back and this is their way of assuring that prior to income tax filing. It’s not like we paid tax on that money yet. 😉
Absolutely happy on continuing the way they are but don’t like the fact there will be a day or reckoning when this mistake will have to be paid for. Totally right on discipline thing. Thats a drawback.
Agree on RRSPs. That’s why I’m always posting vs TFSAs. Outcome same for typical people. Lower income = no.
Yes, we always hear complaints on RRSP witholding tax. That’s largely why TFSA’s favored by most. They “feel better” because you’ve forgotten about paying income tax and what you see is what you get upon withdrawal. For serious savers, especially those with DC or DB pensions they’re fantastic because they’ve given you a great additional tax advantaged savings boost. And for retirees with the means; they can withdraw from registered and contribute to TFSAs. At the end of the day not enough Canadians are capitalizing on either of these to look after themselves in future. IMHO, those that have can look forward to doling out more to pay for that. That’s also why we need a fix on these TFSA tax shortcomings soon towards less leakage of govt tax revenue where it’s not fair or needed. Why is this so hard to see and to fix = politics.
Yes, RRSPs are a big fat NO for me too unless they can somehow max out x2 or x1 TFSAs.
I agree with the tax leakage that some TFSAs might deliver with time. For me, not sure where to start on the income testing rules but I wouldn’t want to repeat some of the shortcomings I see with the OAS program.
RE TFSA amendments I’d start with:
Withdrawals count as income to qualify for government programs of OAS and GIS. Why should RRSPs or pensions count as income for these programs otherwise. Unless I’m missing something, that makes no sense. Some people with large registered assets are collecting GIS by only using TFSA $ until RRIFs start. That just shouldn’t be.
Cap on total account balance? Not so sure on that. We already have very limited contribution amounts and want to have people saving.
I can feel the bullets in my back already.
Ha, bullets, arrows, and more! I like the idea of not putting a cap on contribution room (i.e., no max. lifetime threshold) but I think TFSA assets need to be looked at within the broader total income context.
I have no problem with someone making > $20k or even > $30k per year tax-free from TFSA withdrawals eventually, because that could very well happen in the coming decades, but they cannot get GIS or OAS with that especially if their other sources of income tally more than $50k or $75k per year. No senior making over $75,000 per year from various income sources needs “old age security”. That makes no sense to me.
If that is true, we should be subsiding the “middle class” by providing thousands of dollars per year now (i.e., via income tax reform). That ain’t happening!
I love TFSAs as I imagine everyone does who partakes in this forum. I do suspect I’m in the minority when I say the program needs some adjusting. The program as Mr Carrick laid out is not in the best interest of the country. It needs a lifetime cap of some kind, it needs to take into consideration in some way with respects to OAS and GIS payment coordination. Don’t get me wrong, I’ll keep using them to the extent I can and encourage anyone to look at them in the total financial tool box aspect. But it needs some tweaking.
I suspect it will have a lifetime cap at some point – when – I have no idea but I won’t vote for that yet 🙂
I feel GIS and OAS need an overhaul first. Namely, we don’t need both programs. One good program is better than two mediocre ones. Just me!
The link to the Dividend guy was quite interesting but there is a good reason why 90% of small business fail. I’m quite happy to trade hours for dollars.
As for Robs article on TFSA, one can only keep touting the benefits of them, its up to the individuals to actually save and invest.
Did my analysis on REITs, but some might the higher yields:
https://risingyieldoninvestments.blogspot.com/search/label/REIT%20Investments
i tried to comment on your site cannew but i’m technology inept! i own drg.un and hr.un which give us good income and some capital gain. i enjoy your site but i’ll have to get my grand daughter to show me how to comment. ((: enjoy your site as always mark.
Gary: I can’t even figure out how to reply! Try using Anoyonomus.
it worked!!!
You bet. It’s all about personal discipline I think assuming you have some money to save in the first place. Some people don’t with minimum wage jobs.