Author Topic: Canada: interest-free Couch Potato? advisor?  (Read 3723 times)

scrubbyfish

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Canada: interest-free Couch Potato? advisor?
« on: November 14, 2014, 10:17:19 AM »
Hmmmm...

Over the last year, thanks to directions on this forum, I have
-set up a TD Waterhouse account,
-moved my investments from an awful product to Waterhouse,
-etc

I was preparing to put my stuff into one of the Canadian Couch Potato model portfolios, but learned from CCP that this is not an option in my case. CCP suggested I see a fee-based advisor, but none of them are vetted by or affiliated with CCP, which leaves me nervous.

I need to find a way to invest that:
-does not screw me over like last time
-achieves growth, but no dividends and no interest (a catch of other programs)
-is permitted under RDSP and RESP rules

I don't mind paying to see someone, I just don't want to screw this up again by selecting a kook. Any thoughts about how to find someone good? Or how to find a CCP model that does growth but not income (interest or dividends)?

Prairie Stash

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #1 on: November 14, 2014, 10:49:52 AM »
With RBC I set everything up with a DRIP - Dividend Reinvestment Plan. Although I get dividends from a stock I never see them, they automatically purchase more shares of the stock.  It works out exactly like a pure growth stock when it's inside a tax shelter like an RRSP, RESP, TFSA etc. Outside of a tax shelter you need to worry about tax rules, that's not an issue here.

I assume TD has a DRIP program that's free as well.

scrubbyfish

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #2 on: November 14, 2014, 11:16:34 AM »
With RBC I set everything up with a DRIP - Dividend Reinvestment Plan. Although I get dividends from a stock I never see them, they automatically purchase more shares of the stock.

Thanks, Prairie Practicality. So, do your tax slips and tax return not show an amount under "dividends" in this scenario?

In my case, the issue is of "accessible" money. Money inside an RRSP, RESP, RDSP or trust is considered inaccessible, while anything I can withdraw/collect/receive without penalty is considered accessible.

Prairie Stash

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #3 on: November 14, 2014, 01:18:38 PM »
In my RRSP and TFSA I don't pay any taxes, no tax slips even.

In your case max out the TFSA first, if you want accessible money.  The benefit is no tax worries.  After the TFSA is maxed then max the RRSP, I consider my RRSP inaccessible until I retire. You should have $31,000 of lifetime room in your TFSA; have you contributed $31K so far? The TFSA eliminates all concerns about taxes, it's awesome!

Do you have a special case about accessibility? If it's divorce or bankruptcy the RRSP or RESP might be a better shelter, I don't know if a TFSA has the same sheltering rules. RRSP contributions have a funny rule about needing to be in for 6 months before they're locked in, or something strange like that. You can't dump money in and declare bankruptcy the next day. Just a random thought.

scrubbyfish

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #4 on: November 14, 2014, 01:50:00 PM »
Yeah, my accessibility is not related to taxes nor to my own need to access cash, but rather to subsidy programs. i.e., I have savings but very low income. I never have enough income to pay taxes, but I still receive slips for CRA that detail dividends and interest received (each bank account, retirement investment, etc). Depending on the subsidy, interest or dividends over $100 or $1000 respectively make one ineligible for subsidies, regardless of overall income. i.e. For two years my income was less than $12,000 for me and a kid, but I couldn't get the subsidies we'd normally be eligible for because the previous year's tax return showed over $100 in interest and/or dividends. Ack.

The primary question for me today is: How do I
(a) invest in a CCP-like model, but without the dividends and interest, or
(b) find an ethical CCP-style advisor, permitted to help people in BC, who won't take me for a ride.

CCP acknowledges that fee-based advisors are quite rare in Canada. I'm wondering where to from here?

To be clear, I'm entirely hopeful that I won't need subsidies in the next few years, or even ever again, but 2013's circumstances came as an absolute shock to me, and now I know that we can't forsee things, and that I need to be prepared for the worst case scenario, too.

RichMoose

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #5 on: November 14, 2014, 08:28:30 PM »
If I'm understanding this right, you want to see only capital gains, no revenue? In this case your options are easy via these ETF's:

HXT.TO = Can Index (total return TSX60)
HXS.TO = US Index (total return S&P500)
HBB.TO = Bond Index (total return Can Select Universe Bond)

No international component, but you can split that between HXT and HXS.

Ziggurat

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #6 on: November 14, 2014, 08:37:36 PM »
As I typed, TuxedoEagle's post came in, and that looks promising...

I was going to suggest posting in the free tax advice from CPA CB (this thread).  Maybe there is some way to structure other investments to not trigger the income issues.

I wonder too about the "accessible" issue: RRSP money (regular, as opposed to LIRA) can be taken out, and I think you said that does not count under this issue.  Of course it is taxed as income, but perhaps it does not void the subsidies?

scrubbyfish

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #7 on: November 14, 2014, 09:21:49 PM »
I was going to suggest posting in the free tax advice from CPA CB (this thread).
[...]
I wonder too about the "accessible" issue: RRSP money (regular, as opposed to LIRA) can be taken out, and I think you said that does not count under this issue.

An RRSP is permitted with some programs and not others. RDSP and RESP are safe for all the programs I know of.

I totally agree that these are all "accessible". There would be penalties, sure, but we can still just take the money out, lol. But the programs have opted to view the money inside them as "inaccessible", thus exempt some or all of these accounts. But dividends or interest from any type of account can end eligibility. Very, very specific rules about what, where, how much, and each program has a different set of rules. (It's hard to line everything up to match more than one at a time.)

I will totally check out that thread you linked to.

TuxedoEagle, always a help! Yes, capital gains = good, revenue = bad. I'm going to see if I can get to understand what those are and mean, and may come back to ask!

scrubbyfish

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #8 on: November 14, 2014, 10:15:29 PM »
If I'm understanding this right, you want to see only capital gains, no revenue? In this case your options are easy via these ETF's:

HXT.TO = Can Index (total return TSX60)
HXS.TO = US Index (total return S&P500)
HBB.TO = Bond Index (total return Can Select Universe Bond)

No international component, but you can split that between HXT and HXS.

Here is me trying to learn this. So, the CCP model that seems the best fit for me (>$50,000, 40% in bonds) is as follows. I've numbered each component just for referencing in the next section.

1. Canadian equity 20% Vanguard FTSE Canada All Cap (VCN)
2. US equity 20% Vanguard US Total Market (VUN)
3. International equity 20% iShares MSCI EAFE IMI (XEF)
4. Canadian bonds 40% Vanguard Canadian Aggregate Bond (VAB)

I think you are saying that equivalents to the above that do not generate revenue are:

1. HXT.TO = Can Index (total return TSX60)
2. HXS.TO = US Index (total return S&P500)
3. No equivalent, so just increase #1 and #2 from 20% to 30%
4. HBB.TO = Bond Index (total return Can Select Universe Bond)

Don't worry, I'm not about to do anything, but in this example I would:
Go to Waterhouse, look through a big list of funds, find one called HXT.TO, put 30% of my money in there.
Repeat for #2 (HXS.TO).
Repeat for #4, except put 40% in there.

Am I getting it?

What does 'HXT.TO' vs 'Vanguard FTSE' refer to? Are these the names of the companies (or whatever) that put together a group of stocks to make one "fund"?

I'll leave it at that for now.

RichMoose

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Re: Canada: interest-free Couch Potato? advisor?
« Reply #9 on: November 14, 2014, 11:29:48 PM »
ETFs are traded like stocks. Basically you would go into your TD self-directed trading account and make purchase orders for each ETF in the amount you like for each account that you have. The ETFs that I suggested do not generate any income or have any payouts. The dividends, or interest, are reflected in the value of each ETF unit instead so they would appear to you as Capital Gains.

HXT.to is the ticker symbol for the Horizons S&P/TSX 60 Index (Total Return) ETF, trading on the Toronto (TO) Stock Exchange.

You should probably watch some tutorial videos on purchasing stocks / ETF. I know there used to be some good ones on the Waterhouse website when you sign in. You will be paying purchase commissions for each trade, I believe around $9.99 for accounts over $50,000.