Weekend Reading – Millionaire habits, personal finance lies, new ETFs, anti-RRSP crowds 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.
It’s a snowy weekend here in Ottawa. How about you and your part of the world??
Earlier this week I posted this article:
If you’ve got that figured out – make sure you read this article:
I’ve maxed out my TFSA and RRSP. Now what?
More giveaways? You bet!
Don’t forget 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?
Enjoy your Weekend Reading!
Great stuff here from Tom at Dividends Diversify: 46 habits of self-made millionaires. Given where our net worth now is, I can see why he included many of these. Fun stat:
“To put it another way, only 5% of the millionaire population is less than 45 years of age.”
Hummm, interesting…given where I was a few years back with our net worth and goals.
Alrighty then, Nick Maggiulli believes this is the biggest lie in personal finance. He might be right.
Jon Chevreau provided a detailed take on deferred sales mutual funds – do they really help small-time or entry-level investors still? Check out the article to read my thoughts on this subject along with Jon’s. Thanks for the mention Jon!
Dale Roberts told us we can own the world of bonds, if we really wanted to now, with Vanguard’s new all-in-one bond ETF. My thinking on this, for the management fee of 0.30% no less, I’m more of a fan of domestic bonds since you’re probably better off taking your risk (meaning currency risks) with equities. Long-term, solid returns are not really coming from bonds. Bonds are really best used as portfolio stabilizers. Agree with me??
Financial Pilgrimage shared an excellent story about killing off six-figure debt without a budget. Well done.
That reminds of this post where I believe this is a better way to budget.
Dividend Earner believes you should consider low-cost dividend ETF NOBL. I happen to love this ETF for the same reasons he wrote about:
“For investors who prefer to invest in a basket of S&P 500 Dividend Aristocrats all at once, the two major dividend growth ETFs mentioned above (NOBL and SDY) are among the best ETFs in the market today.”
Certainly NOBL among others made my list of some of the best dividend ETFs to own – period.
My friends at How To Save Money highlighted no less than 40 stores that offer free shipping in Canada.
Boomer & Echo got tired of the anti-RRSP crowd by reminding Canadians that RRSP contributions should be a key consideration for your financial plan, depending upon your income level of course. As per Robb:
“RRSP contributions are still a key component of my financial plan. I’ve caught up on all of my unused contribution room and so now my goal each year is to max out my contribution limit (which is reduced by my pension contributions).”
Ben Carlson is spot-on when writing home ownership is not for everyone.
If you’re struggling to get your financial house in order, beyond following my blog of course, do I have the podcast for you. Check out Tom Drake’s guest Sandy Young this week on The MapleMoney Show.
Mr. Tako Escapes is killing it with his dividend income. I hope to report my latest dividend income update in the coming weeks – stay tuned! Here is my latest update as I approach a HUGE milestone.
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Reader question of the week (adapted for site):
Hey Mark,
I am retired now but my wife is still working for most of this year. We can live off her income this year. Most of our monies are tied up in stocks inside our RRSPs but we might still have money leftover after we start withdrawing from our RRSPs later this year.
I have heard of a thing about “’transferring stocks in kind” and any concerns with that approach?
I’m thinking it would be smart to take out some money inside our RRSPs and then transfer any money that is leftover into our TFSAs. Thoughts? Thanks so much!
Cool questions.
I can’t offer direct investing advice on what to do nor how much to take out of your RRSP. But, I do really like the idea of putting any unused RRSP withdrawals that you don’t need the cash for into the TFSA!!
Just be careful if you want to transfer assets to the RRSP to the TFSA “in kind” (as in “as-is”), then it’s a two-stage process as I understand it. First, you must withdraw the shares from your RRSP to a non-registered account. Then, the assets can move from the taxable account into the TFSA “as-is”. The challenge with this approach is:
- If any assets appreciate during the “in-kind” transfer time, they you will also need to pay a capital gain (not great).
- If any assets fall in value, you cannot claim a capital loss (still not great).
If you hold stocks showing a loss in a non-registered account and you transfer them in kind to your TFSA (or your RRSP, for that matter), you cannot claim a capital loss.
Other reminders and considerations on this:
- When you make the RRSP withdrawal, whether that’s cash or an “in-kind” two-stage transfer of shares, the amount will be added to your income for that year. As a result, you will have some withholding taxes.
- If you do go down the road of in-kind withdrawal, then you might have some leeway in determining the exact amount recorded for the withdrawal. A small benefit. If you request the withdrawal at the end of a trading day, you can choose a price for the investment, ranging from the lowest price at which the investment traded to the highest price traded during the day. If the investment is traded on the U.S. stock market, then the exchange must be applied to Canadian dollars. The exchange rate will be the rate that the brokerage would have applied if you had sold the stock.
- When making RRSP withdrawals, that is tax-deferred money or investments and therefore: lump sum withholding tax rates will apply as per my article here. For example, if you want to withdraw $10,000, in any province outside of Quebec, the tax amount will be 20% x $10,000, or $2k. The total amount of your withdrawal, which includes the amount of the withholding tax, must be included in your tax return for the year. So, for RRSP withdrawals, just make sure you have sufficient cash inside the account to pay the withholding tax. I actually just helped my parents with their RRSP withdrawal while ensuring their cash balance was enough for their withholding taxes as well…
Personally, I think it’s better to sell the assets inside the RRSP (avoid any two-stage “in-kind” process) and move the cash out of your RRSP as you see fit. Then fund the TFSA from there (assuming you have contribution room).
I would certainly love to hear from any retirees working through or who have recently gone through any RRSP-withdrawals-and-now-excess-funds-to-contribute-to-TFSA process – to clarify their approach. Fill up the comments!
On the subject of filling up your TFSA in general – I love this account and I think there are many great things you can do with your TFSA here.
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.
Thanks very much for your helpful comments!
JB
Good stuff!
My son is in his mid twenties and has an opportunity to do RSP matching with a company he recently began working for. He noticed that his only investment option is to chose from a list of Manulife Mutual funds. In my experience, the manulife funds have high mers. He is in the trades so he has no idea how long the job will last. He worked for another company prior to this job for three years and did rrsp matching until the job ended. He is excellent with his money but we are both wondering if it is worth it for him to do rsp matching given that it is common for trades jobs to start and stop unpredictably. Should he leave his investments with the company when the job ends or should he convert them to liras. He has his own rrsp in addition to the company matching one which he invests on his own in Solid Canadian companies. Should he continue to rrsp match if it means having a variety of accounts with different companies? Seems a lot to monitor! Is it worth it for him? Interested in your readers thoughts. Thanks!
Without knowing specifics, if it were I, I’d tend to take the immediate 100% increase in value and not panic about the MER.
They do JB, feel free to share those with me but the 100% matching is FREE money and I would never turn that down.
Worse case, he leaves in a few years, and he is vested with the funds and he can move those locked-RRSP assets to a LIRA.
In summary, take the free company money and try and invest it the lowest-cost most diversified Manulife fund 🙂
I have been doing this for my mom for the last 5 yrs re in kind withdrawals from Rrif to non registered to Tfsa (up to the $6k max per yr). Anything above that is in kind and stays in non registered. Then during the year donate stock to charity/church so that stock transferred from rrif to non registered 5 yrs ago is donated and no capital gains, but able to receive dividends from non registered account and claim the dividend tax credit while drip continues in the tfsa. It’s been working very very well. Rbcdi does everything based on the best bid price at the time I call to start the transfers so no cap gain or disallowed cap loss on transfer to tfsa. They take a couple of days for their back office to move the stock between he 3 accounts but in kind values are set when I make the initial call. Mark, it’s easy to do. I’ve done it for years and simple.
Great to hear your experiences Jim and kudos for the charity donations!
Hey Jim
Great plan. I’ve actually instructed my son to do the exact same thing for my wife if I pass away first,
While I’m around, I’ve changed my RRSP/RRIF to TFSA in kind plan to just contribute cash directly to both my wife and my TFSAs. (from a non-reg cash withdrawal). I then buy one of our holdings in both TFSAs with the contributed cash + the cash that has accumulated in the TFSA from the dividends throughout the year. I then sell the same number of shares in the RRSP/RRIF to keep in balance.
This year we did BPY.UN buying in TFSAs and selling in my RRIF for a total of 775 shares and made a net profit after trading fees of $156. A fun way for a retiree to make a couple bucks as the markets seem so predictable these days with starting higher in the morning then sliding as the day goes on. I bought around 1:00 Mountain Time one day and sold early in the morning a couple days later.
Also, very interesting on the non-reg to charity. I actually just sent an e-mail on Friday to the World Vision contact to see what’s involved. We’re with RBC DI as well so good to know you’ve been doing this for your mother.
Ciao
Don
Thanks for the mention, Mark. That is probably my favorite article that I have written. I still refer to it myself for inspiration and good habits. Who couldn’t use of few more of those! Tom
Good habits are also hard to break! All the best Tom.
Great article Mark ! on a side note of being a Millionaire , when we were kids and heard of someone who’s a millionaire we used to think that having a million is like having infinite amount of money 🙂 but today just by owning a home and nothing else you’re a millionaire i guess now we should look up to billionaires ( does anyone here remember the six million dollar man Lee majors ? :))
Totally re: home ownership. You own your home free and clear in Toronto or Vancouver, in the city, you are a multi-millioniare.
I still believe having a $1 M invested outside any home equity is still realistic for many Canadians who save diligently and stay invested. In fact, I know it’s possible 🙂 More on that to come!
Loved the article on 46 habits of self-made millionaires. Whether the aim is to be a self-made millionaire or not, the life lessons in that article are well worth thinking about, if not following. I sent this article to my nephews as inspiration for living a good life.
Keep up the good work Mark.
Great stuff to share Jan. Tell them to subscribe to the blog 🙂
WRT to RRSP in-kind to TFSA, I have done it a few times with RBC Direct Investing and it was very smooth. It is indeed two steps and showed up that way in my history statement but they were done back-to-back so the sell-buy prices were identical going out of the RRSP, into the non-reg, and then out to the TFSA.
The only thing I would caution against is doing an in-kind transfer from the RRSP to the TFSA of a security you already hold in the non-reg account. I’ve never done this but I would think that would be the “messy” part as the non-reg holding would already have it’s own book value so could potentially trigger a capital gain..
Good to know Don. Thanks.
I’ve done 7 in kind transactions in the past few years from RRPS to unregistered but not to TFSAs. Yes, smooth. TFSA contributions for me in retirement so far are just cash and then buys happen within the account.
If I recall correctly the in kind transfers were done at the current ask price which is locked in for about 10 minutes to do the transaction. RBCDI policy I have been told.
Mark makes reference to pick your price if processed at day end so I suppose each broker has their own policy on this.
Yes, I haven’t checked with each brokerage yet so they might very well have their own protocols on this…I suspect they might and potentially some don’t offer an option to investors any longer.
Great to confirm the two-step process. I don’t know of any brokerage right now whereby it is direct transfer “as-is”. Maybe there are a few but I simply don’t know.
Thanks for confirming the messy part about the temporary holding in the taxable account.
With our transfers from our RRIFs, whether we want them to go to the TFSA or non-registered, the price remains the same (price at the date or time of transfer) going out of RRIF and price recorded in the other accounts. With the TFSA they go to a non-registered first then into the TFSA but the price remains the same.
Interesting stuff. So you don’t have any choice then with the sale price, it is what it is. I would be curious if this happens for all brokerages since I’ve read this was not true at some point. Might be a universal truth now.
Yes, for TFSA, must be a two-step dance to non-registered first.
Don G, Thank you for your comments. I learnt something new today!
Hey Juliana
You’re more than welcome.
I’ve spent heaps of time on developing an RRSP drawdown strategy for me and my wife and all the associated short term and long term tax implications (ie: total lifetime taxes). This in kind stuff was just part of it.
Ciao
Don
Great stuff Don 🙂
Path to financial success is not one step but a overall change in attitude. Yes, reduce debt. Yes, cut expenses and yes start saving. But to achieve the goal it is a continual process of evaluation and working with what you have, what’s available and what you can live with. Once you are out of debt the past is easy, but getting to that point will be different for everyone.
The main thing is to recognize your own situation and work on changing it.
re: debt. I think so Cannew. I know I can speak for me/us in that once debt is gone, a whole new world will open up. We’re paying almost $2,000 per month on our mortgage so that’s a lot of cash flow to put to work and/or spend and enjoy while working.
Thanks for sharing the weekend reads, Mark! I also like you advice you provided on RRSP withdrawals. I used to work for RBC Direct Investing and had to process a lot of withdrawals and “in-kind” transfers. I also think it’s best to sell within the RRSP if possible, because it can get messy. Thanks for sharing. Have a nice weekend!
That’s good insights RTC. I didn’t know you used to work at RBC.
How is the full-time blogging coming along?
Mark
Yeah, I worked at RBC for almost 4 years. I worked as a Mutual Fund Advisor and then at RBC Direct Investing. Then I took a year off. After that I worked for CIBC for another 3 years. I only recently got out of the banking industry. But I’m not full-time blogging yet. I have a part-time job and I’m trying to grow the blog as a side hustle.
Gotcha….re: part-time job and blogging. I certainly don’t have any time to run my blog full-time with the FT job I have. I can barely keep up with a few posts per week but it’s fun 🙂
Keep it the good work. Chat again soon.
Mark
Looks like Ottawa / Montreal got hit hard with this system.
We got lucky in Toronto and got the tail end of it with just a few cms.
Btw, I ended up writing that post on my blog about what’s in my portfolio. Thought you’d be interested in checking it out 🙂
I will be over to check it out and put it up in my next weekend reading edition 🙂
Mark
Sweet, thanks Mark!
In the queue for next week 🙂 Have a great weekend.