Weekend Reading – Market corrections, giveaways, juicy dividends, retirement case studies, owning VFV and more #moneystuff

Weekend Reading – Market corrections, giveaways, juicy dividends, retirement case studies, owning VFV 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.

Happy February!

Earlier this week I answered a few reader questions on the subject of:

I’ve maxed out my TFSA and RRSP. Now what?

What a great problem to have!

Don’t forget as part of my Weekend Reading you can enter to 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?

TurboTax 2019

Enjoy the weekend!

Weekend Reads

Canadian National Railroad increased their dividend by 7% this week. That added more dividend income to my income stream!

Boomer and Echo wondered if we are due for a market correction, in one of his latest weekend reading editions. He mentioned something in that post which always resonates with me and my messages here on this site:

“The only time you should be worried about a correction is if you need the money within the next five years and haven’t made an appropriate plan to access the cash.”

Indeed. Investing is a long-term endeavour, especially in equities. 

That’s why you always need to stay invested.

Index Proxy Fund 5-year return 10-year return Since inception
S&P/TSX (Canada) XIC 6.27% 6.77% 6.53% (2001)
S&P 500 (U.S.) IVV 11.65% 13.50% 6.15% (2000)

Returns courtesy of iShares site, up to December 2019.

I enjoyed this YouTube video by Ben Felix on Dave Ramsey’s financial advice. Ben’s thoughts: “…his advice on investing should be avoided at all costs”. Love it.

All About The Dividends is adding more diversification to his portfolio. He selected a global iShares ETF XAW for his portfolio, which is an excellent choice.

Jon Chevreau was kind to highlight this case study of mine: can this couple who have amassed $1.2 M in their portfolio retire now, in their 50s, without any pension? The answer might surprise you.

Here are some other awesome case studies about how much is enough:

  • Mike and Julie will have an investment portfolio worth about $1 M along with a 12-month cash fund when they retire at age 55. Is that enough?
  • This couple believes they have enough to retire early with $800k invested, a paid off home, and a small pension in their 50s. Are they right – did they save enough?
  • A reader told me his RRSP is worth about $250k, at age 60, and wonders if he can retire on a modest income?  Does he have enough?

Dale Roberts profiled the healthy returns of some major U.S. dividend ETFs. I’m a big fan of VYM myself for income and growth. Another Vanguard fund such as VIG has performed very well in recent years as per his post.

Million Dollar Journey is knocking it out of the park. He is very close to realizing his goal of earning $60,000 per year in dividend income. Incredible. Here are his top holdings, an ex-Canada ETF and consistent Canadian dividend payers for income and diversification.

“In our overall portfolio, here are the current top 10 largest holdings (besides cash):

  1. iShares Core MSCI All Country World ex Canada Index ETF (XAW);
  2. Emera (EMA);
  3. Enbridge (ENB);
  4. TransCanada Corp (TRP);
  5. Fortis (FTS);
  6. Canadian Utilities (CU);
  7. Bell Canada (BCE);
  8. Bank of Nova Scotia (BNS);
  9. Telus (T); and,
  10. Royal Bank (RY).”

Canadian Fire is a fan of “Wealthy Barberism”. So am I. Essentially 1) kill your debt and 2) save 10% of your net income into low-cost investment products with help of a leading discount brokerage or robo-advisor. That’s it. Rinse and repeat for 30 years without tinkering with your portfolio. You should end up quite wealthy. Don’t overthink it.

Need help with your TFSA, RRSP or RESP in 2020?

Use my Deals page where I can save you money, as in hundreds of dollars with Bank of Montreal, Questrade, or you can have $50,000 managed free for a year with ModernAdvisor.

Reader question of the week (adapted for site):

Good morning Mark!

Thanks for all you do on the site. I know you mentioned about not using U.S. stocks for TFSAs because of (withholding) taxes. I’m planning to buy the Vanguard fund VFV in my TFSA. It’s a Canadian ETF as you know. Would that be a good buy for my TFSA? What about for my RESP?

Thanks for your help!

Love it. I mean, these savvy readers know about low-cost funds, they are mindful to try and invest in registered accounts (such as TFSA, RRSP, RESP) before taxable investing AND these folks are wondering about withholding taxes as well.

That is some very knowledgeable stuff!!

First, I won’t bore you with any low-cost investing talk. You’re already there obviously and know the benefits. For those that want to read up on my favourite ETFs including VFV like this reader did they can visit this page and posts here.

Second, personally, the only reason I don’t yet invest in U.S. stocks inside the TFSA is because I’ve typically maxed it out with Canadian dividend paying stocks like these every year for the last decade.

These are 5 dividend stocks I want to buy more of this year.

For 2021 TFSA investing, I am strongly considering buying some U.S. stocks or ETFs inside my TFSA to build up some USD $$ tax-free income. But…I need to caution myself and others!

Just be mindful that any U.S. stocks or U.S. ETFs held inside the TFSA will be subjected to 15% withholding taxes on dividends/distributions paid. So, this is a good reason to put U.S. stocks or U.S. ETFs inside your RRSP or LIRA first – because the 15% foreign withholding taxes do not apply.

While on that note, third, even if you hold VFV (which is the equivalent of owning iShares U.S. ETF VOO) in Canadian dollars, the withholding taxes charged on a Canadian ETF that holds a U.S. ETF (like VOO) that do occur are minimal.  

Again, to be clear:

  • If you hold a Canadian ETF like VFV that holds/tracks the S&P 500 index (like VOO) in a non-registered account, you will get charged foreign withholding taxes but you can recover those when you file your tax return.
  • If you hold the Canadian ETF like VFV in your RRSP or TFSA, there are withholding taxes applied. Nothing you can do about it!
  • If you hold the U.S. domiciled ETF (VOO in this case) inside your RRSP, no withholding taxes will apply because it is recognized as a retirement account by the U.S. IRS.

Knowing that, if you hold an S&P 500 ETF like VFV that holds VOO, which has ~ 2% dividend yield then the tax grab inside the TFSA or RRSP or RESP is only 2% * 0.15 = 0.3%. It’s really small potatoes here. 

Generally speaking:

  1. In a TFSA or RESP, consider using Canadian-listed ETFs for foreign equities. That’s because U.S. listed ETFs don’t offer any tax advantage.
  2. In an RRSP when you have enough assets to perform Norbert’s Gambit then consider using U.S.-listed ETFs for foreign equities. 

This is the Norbert’s Gambit process to save money on brokerage foreign exchange fees. 

Long-term though, I would be more concerned about owning some short-term bonds or other fixed income assets the closer you are (or your children are) to tapping the RESP money. I wouldn’t put it all on equities for good! Generally speaking, the closer you are to using any money inside the RESP the more fixed-income and security you want. Consider more fixed-income in years 10+ for the RESP. 

Just my thoughts!

Happy investing!

Mark

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

18 Responses to "Weekend Reading – Market corrections, giveaways, juicy dividends, retirement case studies, owning VFV and more #moneystuff"

  1. Plan to post a blog comment on Ben Felix’s opinion on Dividend Growth investing, but with regard to his concerns with Dave Ramsey’s financial advice, not much of a comparison. Yea, I don’t like mutual funds but to argue that Active fund investing is less productive than Passive fund management really depends upon the investor. Personally, I don’t like Mutuals or ETFs. ETFs may provide lower fees but in my opinion neither will provide meaningful long-term income growth. Market returns is not one of my concerns.Yes, you’ll receive income but probably half of what one might receive by sticking with quality dividend growth stocks.

    Reply
    1. I think Dave Ramsey’s advice is generally outdated and poor but I have to be honest, I don’t follow him very much. I simply liked how Ben refuted some of the poor advice he provides. I hadn’t seen anyone to date counter that stuff in a video before and I thought it was good stuff.

      Been fan of quality dividend growth stocks here. Are you buying anything or simply holding what you have? I would like to buy more CNR and potentially some U.S. healthcare this year such as MDT.

      Mark

      Reply
      1. Welcome back Mark. I haven’t been buying for years, however, I recently sold two of my stocks to gift the shares and money to the kids. Cost me about $6k of dividend income, but I expect to recover it by late spring or early summer.

        Reply
  2. Hey Mark,

    Great point about the withholding taxes. I try to keep the tax consequences at a minimal in my non registered account. So invest in my TFSA, RRSP and non registered account simultaneously and allocate my assets to take advantage of each account’s unique attribution rules.

    Reply
  3. Hi Mark, Thanks so much for this post! Just so I understand correctly…if you buy VFV in a non-registered account you’ll pay withholding taxes, but they can be recovered when I file my taxes? If so, would this be the same with XAW as well? I make under $50,000 per year, so I’m wondering if I should keep them out of my RRSP. Thanks so much!

    Reply
    1. “If you buy VFV in a non-registered account you’ll pay withholding taxes, but they can be recovered when I file my taxes?”

      Correct.

      More references:
      https://www.moneysense.ca/columns/foreign-withholding-tax-explained/

      “Canadian ETF that holds a US-listed ETF of US stocks.

      iShares S&P 500 (XSP)
      Vanguard MSCI U.S. Broad Market (VUS)

      In a taxable account, US withholding taxes apply, but are recoverable.
      In an RRSP or TFSA, US withholding taxes apply and are not recoverable.”

      My friend also did a post on some popular ETFs and the withholding taxes:
      https://milliondollarjourney.com/the-real-mer-on-etfs-foreign-withholding-taxes-on-etfs.htm

      Happy investing!
      Mark

      Reply
  4. Thanks for the reminder about RESPs and moving them into something more conservative as they date of use approaches. Right now our little one is very young so her RESP is in VEQT but we will definitely want to transition this in the future.

    Another great roundup post. Thanks for all the info.

    Reply
  5. I didn’t bother watching Ben Felix’s latest vid as I think he is one of the worst financial people I’ve ever seen. He is a total arrogant, self-serving promoter. (I have watched a couple other vids and so totally disagree with his strategy).

    Reply
  6. Great informative post as always but I am not clear on the withholding taxes…if I buy a Canadian traded and domicile ETF that holds US stocks inside my RSP there will be taxes? How and when are they applied? Appreciate if you could clear this up as I was just about to buy some, thanks very much!

    Reply
  7. Thanks very kindly Mark, appreciate the post, links
    and the response. I had no idea and it got me to digging for more info. Came across the Canadianportfoliomanagers blog which has an in depth article posted that answers every question one might have re: ETF taxation, well worth the read. If it wasn’t for your post I would have had no idea, changing the way I stack the portfolio going forward. Thank very much again and please keep up the good work, always an informative, interesting and inspirational read.

    Reply

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