Author Topic: Best index funds to hold in a Canadian non-registered account  (Read 3003 times)

NorthernDreamer

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I am in the process of receiving a decently large sized inheritance. After maxing my husband's and my TFSAs and RRSPs, we are going to have around $90,000ish "left over". Best problem ever, I know. We think we will throw $20,000-$30,000 at our mortgage (currently hovering at just about $200,000, but about to renew it at 2% variable).

We will invest the rest in a non-registered account with Questrade. Fancy! A few questions:
1. Is it best to have it in my name since I earn less than my husband? Except for 2017, when my income will be super high since most of the inheritance is in the form of a pension payout.
2. Are there better index funds to hold in a non-registered account? We've pretty much been sticking to Vanguard funds. My husband has been lured by some shiny stocks (like Apple) but they are at less than 5% of our portfolio.

Any advice is helpful! Even though the pension payout is being taxed at the source, they only took off 30%. It's pushing my income past $200,000 for the year so I am sure I will owe more tax next year on it. Unfortunately I don't have much RRSP room since I have a pension plan at work. My husband does have over $30,000 in contribution room right now - should we invest some as a spousal RRSP?

Gah, I'm beginning to think I need to consult an accountant or fee-based financial advisor. Do those even exist in Canada?

Retire-Canada

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #1 on: March 07, 2017, 12:58:01 PM »
I hold only VCN in my taxable account. It's gets favourable treatment of dividends there.

Mr. Rich Moose

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #2 on: March 07, 2017, 05:19:48 PM »
I am in the process of receiving a decently large sized inheritance. After maxing my husband's and my TFSAs and RRSPs, we are going to have around $90,000ish "left over". Best problem ever, I know. We think we will throw $20,000-$30,000 at our mortgage (currently hovering at just about $200,000, but about to renew it at 2% variable).

We will invest the rest in a non-registered account with Questrade. Fancy! A few questions:
1. Is it best to have it in my name since I earn less than my husband? Except for 2017, when my income will be super high since most of the inheritance is in the form of a pension payout.
2. Are there better index funds to hold in a non-registered account? We've pretty much been sticking to Vanguard funds. My husband has been lured by some shiny stocks (like Apple) but they are at less than 5% of our portfolio.

Any advice is helpful! Even though the pension payout is being taxed at the source, they only took off 30%. It's pushing my income past $200,000 for the year so I am sure I will owe more tax next year on it. Unfortunately I don't have much RRSP room since I have a pension plan at work. My husband does have over $30,000 in contribution room right now - should we invest some as a spousal RRSP?

Gah, I'm beginning to think I need to consult an accountant or fee-based financial advisor. Do those even exist in Canada?

How far away from retirement are you? You might be better off investing in ETFs that don't pay dividends if you're a long way away, or if your incomes are in moderately high tax brackets. In ON you're paying 17.8% tax on dividends for income over $87,000.

A spousal RRSP won't do you any good for the inheritance income. A spousal benefitting your husband is still based on your contribution room, not his.

If you go with a taxable account it's generally best to go joint. Gives you more flexibility down the road with income splitting.
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Heckler

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #3 on: March 07, 2017, 07:43:31 PM »
. My husband does have over $30,000 in contribution room right now - should we invest some as a spousal RRSP?




His $30k room is either to his RSP or to his spousal RSP (to be taxed as income at your tax rate 3 or more years from the last contribution).  The goal should be for both of you to end up with a similar RSP/pension taxable income at retirement to keep both income tax levels even (and low). 

http://www.taxtips.ca/rrsp/spousal-rrsp-rrif.htm

If you do open another account, realize its going to be a fun challenge to manage if you make the right decision to have a family asset allocation plan.

http://canadiancouchpotato.com/2012/03/12/ask-the-spud-investing-with-multiple-accounts/


Our goal is to contribute amounts to balance his RSP (taxed at his rate) with her RSP plus his spousal (taxed at her rate), so we can each eventually draw $20k in taxable income from his one or her two accounts.  Yes, it's a full time job updating the spreadsheet! 

PennyGripper

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #4 on: March 07, 2017, 08:15:32 PM »
A few quick tips:
-I would use up the RRSP room your husband has (tax deduction and tax-free compounding)
-I would say you are likely better off opening a spousal RRSP and having your husband contribute to it if your earnings in retirement are going to be less than his (saves you income tax)
-it is always better to have your US dollar investments that pay dividends comprised of your portfolio in your RRSP or RRIF.  The IRS does not tax dividends in those accounts due to an agreement, they do tax them in all other accounts (Eg: TFSA, non-registered accounts).  For the Non-RRSP accounts the US tax on dividends should be 15%.  Check your questrade account and if they are charging you 30% you can complete a form to have it reduced.
-the Canadian Couch Potato investor has some good information that sounds well researched on index funds
-Canada definitely has fee-based advisors.  (Make sure they have their CFP)

All the best with the portfolio

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tyir

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #5 on: March 07, 2017, 11:59:00 PM »
For your original question, VCN is good, but even more optimized is to use Horizon's swap-based funds such as HBB and HXT. The advantage of their structure is they pay out no dividends - it automaticallys stays in the fund so it is all capital gains. This means you're not forced to reinvest dividends that you pay tax on.

There's some very slight risk of the swap structure being made illegal, but the worst case would be a forced capital gain. CPP has written about them a couple times.

http://canadiancouchpotato.com/2011/06/06/understanding-swap-based-etfs/
http://canadiancouchpotato.com/2012/01/26/tax-efficient-investing-with-etfs/

Retire-Canada

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #6 on: March 08, 2017, 08:21:50 AM »


This info ^^^ is from 2011 so it's not up to date, but it shows how you can optimize taxes depending how you get your income. I wouldn't be afraid of getting qualified dividends in a taxable account unless you've examined you situation and determined you'd be better off with another type of fund. Don't forget to factor in MERs when doing that analysis VCN is currently at 0.06% so fairly low. If you end up paying a higher MER to avoid dividends you need to ensure the end result actually provides a net benefit.

Other provinces and income levels are shown at this link: http://howtoinvestonline.blogspot.ca/2011/04/how-your-province-income-level-and.html

NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #7 on: March 08, 2017, 06:52:39 PM »
Thanks, all. We are about 10-15 years away from early retirement. We are going to end up with our savings spread over lots of different accounts in retirement: we both have an RRSP and a TFSA with Questrade. Now, we are probably adding a taxable/unregistered account with Questrade too. I have a workplace pension, and about $7000 sitting in a former pension fund (which reminds me, I should look into moving it; it's with the teacher's pension plan so it's usually "does good"). And my husband has some RRSP money with Manulife in a group fund that his employer fully matches, up to 3% of his salary, so that is what we contribute. Side note: for the Manulife investing, we chose the funds (based on our ex-financial planner's suggestions) and it's been returning well over 15% the past few years, though presumably with some hefty MERs.

It looks like I have some reading to do! I am thinking we'll skip the spousal RRSP and put all the "extra" money in a taxable/unregistered account in my name. I just need to figure out how to best invest in that account to minimize taxes.

NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #8 on: March 08, 2017, 06:54:57 PM »
Oh wait, I forgot the mention that taxable accounts can be joint. I'll have to look into that too, since I had no idea you could do that. I am still on a steep learning curve! So I appreciate all the helpful advice :)

Prairie Stash

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #9 on: March 10, 2017, 04:05:00 PM »
I am in the process of receiving a decently large sized inheritance. After maxing my husband's and my TFSAs and RRSPs, we are going to have around $90,000ish "left over". Best problem ever, I know. We think we will throw $20,000-$30,000 at our mortgage (currently hovering at just about $200,000, but about to renew it at 2% variable).

We will invest the rest in a non-registered account with Questrade. Fancy! A few questions:
1. Is it best to have it in my name since I earn less than my husband? Except for 2017, when my income will be super high since most of the inheritance is in the form of a pension payout.
2. Are there better index funds to hold in a non-registered account? We've pretty much been sticking to Vanguard funds. My husband has been lured by some shiny stocks (like Apple) but they are at less than 5% of our portfolio.

Any advice is helpful! Even though the pension payout is being taxed at the source, they only took off 30%. It's pushing my income past $200,000 for the year so I am sure I will owe more tax next year on it. Unfortunately I don't have much RRSP room since I have a pension plan at work. My husband does have over $30,000 in contribution room right now - should we invest some as a spousal RRSP?

Gah, I'm beginning to think I need to consult an accountant or fee-based financial advisor. Do those even exist in Canada?

How far away from retirement are you? You might be better off investing in ETFs that don't pay dividends if you're a long way away, or if your incomes are in moderately high tax brackets. In ON you're paying 17.8% tax on dividends for income over $87,000.

A spousal RRSP won't do you any good for the inheritance income. A spousal benefitting your husband is still based on your contribution room, not his.

If you go with a taxable account it's generally best to go joint. Gives you more flexibility down the road with income splitting.
If you have low income in Ontario Dividends are tax favoured. MrRichMoose implied that, I'm just making it clear.

On income under 42,200 dividends are taxed at -6.86% - you get money back. Dividends at low incomes are very tax friendly.

What's your income level? if we're getting into best taxable account income level matters.

tyir

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #10 on: March 11, 2017, 12:17:34 AM »
The above information is correct, my suggestion for H** funds may be optimal if you're in a high tax bracket, but not needed if you are in a lower one.

Freedomin5

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #11 on: March 11, 2017, 04:02:24 AM »
This is super helpful! I just wanted to say thank you everyone for sharing. I'm glad the OP asked their question, as I wasn't aware of what I didn't know. I just started investing in index ETFs (Vanguard and iShares) via TD Direct about six months ago, and taxes never even crossed my mind.

Luckily, I'm in a super low income bracket in Ontario (as in, less than $20k Canadian gross income), so I think I should be okay.

human

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #12 on: March 11, 2017, 04:38:14 AM »
If people are purchasing mostly index etfs and then run out of room in non taxable accounts what happens to their allocations? Do you wind up selling off everything in your tfsas to buy stuff that isn't tax friendly and place them there?

I ask because my rrsp room is small becuase of pension and well tfsa room really isn't that big to begin with. Edited above to make more sense, damn phone!
« Last Edit: March 22, 2017, 08:18:16 PM by human »

NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #13 on: March 13, 2017, 11:22:34 AM »
I hold only VCN in my taxable account. It's gets favourable treatment of dividends there.

I read this  http://canadiancouchpotato.com/2013/10/30/making-smarter-asset-location-decisions/ and I'm trying to wrap my head around it all.... when we switched over to Questrade last year, we decided on a CCP asset allocation of 50% VXC, 25% VCN and 25% VAB. We invested according to that spread for each of our TFSAs, RRSPs, and RESP individually. Now that we are adding a non-registered account to the mix, am I right in thinking I need to rebalance by viewing the funds in my TFSA, RRSP and non-registered account as ONE large pool of money? It sounds like I should be looking at holding Canadian ETFs in my non-registered account (looking at VCN, or also XIC, ZCN, HXT - trying not to get stuck in paralysis by analysis). Then look at what total % of my money that encompasses, and perhaps only investing in bonds and international ETFs in my RRSP/TFSA? Although VAB is pretty terrible right now.

I'm going to play with my spreadsheet this week and post again for any available feedback to help invest this lump sum most tax-effectively...

Retire-Canada

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #14 on: March 13, 2017, 11:29:10 AM »
Now that we are adding a non-registered account to the mix, am I right in thinking I need to rebalance by viewing the funds in my TFSA, RRSP and non-registered account as ONE large pool of money?

There is no reason to rebalance accounts individually. Pool the total $$ by ETF and compare to your desired asset allocation.

Mr. Rich Moose

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #15 on: March 13, 2017, 11:45:23 AM »
I read this  http://canadiancouchpotato.com/2013/10/30/making-smarter-asset-location-decisions/ and I'm trying to wrap my head around it all.... when we switched over to Questrade last year, we decided on a CCP asset allocation of 50% VXC, 25% VCN and 25% VAB. We invested according to that spread for each of our TFSAs, RRSPs, and RESP individually. Now that we are adding a non-registered account to the mix, am I right in thinking I need to rebalance by viewing the funds in my TFSA, RRSP and non-registered account as ONE large pool of money? It sounds like I should be looking at holding Canadian ETFs in my non-registered account (looking at VCN, or also XIC, ZCN, HXT - trying not to get stuck in paralysis by analysis). Then look at what total % of my money that encompasses, and perhaps only investing in bonds and international ETFs in my RRSP/TFSA? Although VAB is pretty terrible right now.

I'm going to play with my spreadsheet this week and post again for any available feedback to help invest this lump sum most tax-effectively...
As R-C stated, you should always treat your entire portfolio as one large pool of money. It can be a little tricky because you're contributions as a % of assets changes by accounts due to the limits of RRSPs and TFSAs. However, viewing it as one big pool allows you to optimize for tax purposes. Just don't be tempted to hold outsized concentrations in VCN/XIC in non-reg for example, just because of the dividend tax credit. Canada is a small country in a big world and we have a limited number of truly international companies on our stock markets. Not to mention we're dangerously concentrated in finance and energy.

Try not to overthink the differences in ETFs. VCN, XIC, and ZCN should all perform similarly over the long run and their fees are similar as well.

HXT on the other hand is a swap product. Great choice taxwise if you're high income. But by my calculations it performs comparably to traditional Canadian index ETFs at moderate income levels ($46,000 - $92,000) and can underperform if you have low income (under $46,000).

Regarding bonds... For a non-Mustachian, I would say you would be generally best with bonds in a RRSP. But for us enlightened folks I would put bonds in non-reg. Especially if you use HBB.TO (a swap product), or ZDB.TO (which is still super low cost and quite a bit more tax efficient than VAB.TO).

Hope this helps!

Edit typo. Thanks Koogie
« Last Edit: March 14, 2017, 09:41:22 AM by Mr. Rich Moose »
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K-ice

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #16 on: March 13, 2017, 11:14:12 PM »
Posting to follow. I'll have a few more comments soon.

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #17 on: March 14, 2017, 09:13:02 AM »
Regarding bonds... For a non-Mustachian, I would say you would be generally best with bonds in a RRSP. But for us enlightened folks I would put bonds in non-reg. Especially if you use HBB.TO (a swap product), or ZBD.TO (which is still super low cost and quite a bit more tax efficient than VAB.TO).
Hope this helps!

ZDB, not bd.  If you are referring to their discount bond etf.
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NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #18 on: March 14, 2017, 11:14:42 AM »
My part-time salary plus a side gig is around $50,000/year. My husband is $80,000/year.

K-ice

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #19 on: March 14, 2017, 02:18:14 PM »
I am basing my decisions on some of my assumptions and preferences:

Every long-term investment is better in a TFSA or RRSP until they are full.
I personally prefer TFSA over RRSP.
The investment you predict to gain the most is best in your TFSA. ("Predicting" is hard but equities historically gain more than bonds.)
Canadian Dividend stocks have tax advantages in non-registered.
I do not plan on touching my investments for a long time 10+ years.
I have ignored holding anything in US dollars. These are best in the RRSP but I’ve asked about it before and was told you need over 100K US to invest to make this worthwhile.

I also ran my numbers using an old CCP portfolio where only Vanguard ETF were considered.

STEP 1 look at all the money you have currently invested and to invest.

Let's assume 200K

STEP 2 decide your allocation

Let's run a scenario with:
VAB 10%  --> 20K
VCN 30%  --> 60K
VXC 60%  --> 120K
^^^ I believe this was the old aggressive CCP portfolio but I can’t find it.

STEP 3 determine your limits

TFSA 52000  (based on age)
RRSP 60000  (based on past income)
Non-reg 88000 (total from step 1 - TFSA - RRSP)

STEP 4  decide on the location (This is the most controversial step)
You could just put a bit into each location based on your allocation but since you are here asking the question you know this is not the most efficient.
So this is how I would “locate” my allocation:
TFSA = 52000 VXC (why? because I think it has the most to gain, VCN should do well too but they are better treated tax wise than VXC in non-registered)
RRSP = 20000 VAB  + 40000 VXC  (Why? bonds have no tax advantage anywhere, might as well defer the tax in my RRSP, VXC is only in here because I wanted to fill my RRSP with something.)
Non-Reg = 60000 VCN + 28000VXC (Why? All my VCN is here because the Canadian dividends are treated favorably. Everything else was full so VXC had to go somewhere)

You will notice that I have VXC in a bit of everything. Ideally it would all be in TFSA but that fills up quite fast.   In total I have 5 different accounts instead of 9 (3x3) so it is a bit more simple.

I have another way of looking at it:

Take your 200K and buy some beans based on your allocation.
VAB = 20K in black beans
VCN = 60K in red beans
VXC = 120K in white beans

Now you have 3 jars.   
A small TFSA 52K jar
A medium RRSP 60K jar
And an unlimited bucket that will never overflow.

Pour some red VXC into the TFSA jar.  It is now full at 52K
Pour Black VAB bonds into the RRSP jar, it is 20K full and still has room
Pour VXC into the RRSP jar,  It is mixed 20K Bonds 40K VXC
Pour the remaining into the bucket.  60K VCN and 28K VXC

You now have 3 containers with no more than 2 different investments in them. Your tax advantaged jars are full.

CPP aggressive                 %           TFSA       RRSP        Other      TOTAL
BONDS                            10            0           20K      0          20K
CANADIAN Equites         30            0             0         60K          60K
OTHER Equities            60            52K           40K      28K          120K
Check TOTAL            100%           52K          60K      88K          200K

If you start out with a different allocation % your bins will look different
CPP conservative             %        TFSA    RRSP       Other        TOTAL
BONDS                           70     0           60K              80K              140K
CANADIAN Equites         10       12K      0                8K                20K
OTHER Equities            20         40K       0                 0                  40K
Check TOTAL            100%       52K      60K              88K                200K

I find the bean visual quite useful.   Here is a table that I think respects my “filling order” based on my beliefs.
                                 TFSA               RRSP         Other      
BONDS                              3                  4           8      
CANADIAN Equites             2                  6          7      
OTHER Equities                 1                  5          9      




You asked if you should re-balance? My easy answer is YES but you might not need to do so immediately.  Perhaps make your new purchases to best reflect the final distribution you want. 

Also, don’t forget you may want to ask about making an “in-kind” transfer to better shuffle things around without actually selling.  But I wouldn’t transfer anything out of an RRSP and make TFSA movement near the end of the year so you can fill it right back up again in January.

I hope this was helpful and not just super confusing.  I have been looking at asset “location” for quite a while and finally think I am getting it.
My RRSP only holds VAB and VXC
My TFSA  holds VXC and Canadian equities
My other holds Canadian equities


« Last Edit: March 14, 2017, 02:30:44 PM by K-ice »

NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #20 on: March 16, 2017, 09:04:59 AM »
I am basing my decisions on some of my assumptions and preferences:

Every long-term investment is better in a TFSA or RRSP until they are full.
I personally prefer TFSA over RRSP.
The investment you predict to gain the most is best in your TFSA. ("Predicting" is hard but equities historically gain more than bonds.)
Canadian Dividend stocks have tax advantages in non-registered.
I do not plan on touching my investments for a long time 10+ years.
I have ignored holding anything in US dollars. These are best in the RRSP but I’ve asked about it before and was told you need over 100K US to invest to make this worthwhile.

I also ran my numbers using an old CCP portfolio where only Vanguard ETF were considered.

STEP 1 look at all the money you have currently invested and to invest.

Let's assume 200K

STEP 2 decide your allocation

Let's run a scenario with:
VAB 10%  --> 20K
VCN 30%  --> 60K
VXC 60%  --> 120K
^^^ I believe this was the old aggressive CCP portfolio but I can’t find it.

STEP 3 determine your limits

TFSA 52000  (based on age)
RRSP 60000  (based on past income)
Non-reg 88000 (total from step 1 - TFSA - RRSP)

STEP 4  decide on the location (This is the most controversial step)
You could just put a bit into each location based on your allocation but since you are here asking the question you know this is not the most efficient.
So this is how I would “locate” my allocation:
TFSA = 52000 VXC (why? because I think it has the most to gain, VCN should do well too but they are better treated tax wise than VXC in non-registered)
RRSP = 20000 VAB  + 40000 VXC  (Why? bonds have no tax advantage anywhere, might as well defer the tax in my RRSP, VXC is only in here because I wanted to fill my RRSP with something.)
Non-Reg = 60000 VCN + 28000VXC (Why? All my VCN is here because the Canadian dividends are treated favorably. Everything else was full so VXC had to go somewhere)

You will notice that I have VXC in a bit of everything. Ideally it would all be in TFSA but that fills up quite fast.   In total I have 5 different accounts instead of 9 (3x3) so it is a bit more simple.

I have another way of looking at it:

Take your 200K and buy some beans based on your allocation.
VAB = 20K in black beans
VCN = 60K in red beans
VXC = 120K in white beans

Now you have 3 jars.   
A small TFSA 52K jar
A medium RRSP 60K jar
And an unlimited bucket that will never overflow.

Pour some red VXC into the TFSA jar.  It is now full at 52K
Pour Black VAB bonds into the RRSP jar, it is 20K full and still has room
Pour VXC into the RRSP jar,  It is mixed 20K Bonds 40K VXC
Pour the remaining into the bucket.  60K VCN and 28K VXC

You now have 3 containers with no more than 2 different investments in them. Your tax advantaged jars are full.

CPP aggressive                 %           TFSA       RRSP        Other      TOTAL
BONDS                            10            0           20K      0          20K
CANADIAN Equites         30            0             0         60K          60K
OTHER Equities            60            52K           40K      28K          120K
Check TOTAL            100%           52K          60K      88K          200K

If you start out with a different allocation % your bins will look different
CPP conservative             %        TFSA    RRSP       Other        TOTAL
BONDS                           70     0           60K              80K              140K
CANADIAN Equites         10       12K      0                8K                20K
OTHER Equities            20         40K       0                 0                  40K
Check TOTAL            100%       52K      60K              88K                200K

I find the bean visual quite useful.   Here is a table that I think respects my “filling order” based on my beliefs.
                                 TFSA               RRSP         Other      
BONDS                              3                  4           8      
CANADIAN Equites             2                  6          7      
OTHER Equities                 1                  5          9      




You asked if you should re-balance? My easy answer is YES but you might not need to do so immediately.  Perhaps make your new purchases to best reflect the final distribution you want. 

Also, don’t forget you may want to ask about making an “in-kind” transfer to better shuffle things around without actually selling.  But I wouldn’t transfer anything out of an RRSP and make TFSA movement near the end of the year so you can fill it right back up again in January.

I hope this was helpful and not just super confusing.  I have been looking at asset “location” for quite a while and finally think I am getting it.
My RRSP only holds VAB and VXC
My TFSA  holds VXC and Canadian equities
My other holds Canadian equities

THANK YOU! For some reason I was having trouble wrapping my mind around this. It makes so much sense now.

It looks like I need to do some selling/rebalancing. But I won't mess with my TFSA until late in the year, if at all. A few perhaps silly questions:

1. Can I sell and rebuy all within my RRSP Questrade account at any time? I'd be looking at selling my VCN and buying some more VAB and VXC.

2. I do own some stocks, not a giant amount. TD, SHOP and DOL. Are those considered Canadian equities?

3. I hold some VDY in my RRSP. Is there a better place for it? Should I buy both VCN and VDY in my theoretical unregistered account?

K-ice

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #21 on: March 17, 2017, 12:01:34 PM »

1. Can I sell and rebuy all within my RRSP Questrade account at any time? I'd be looking at selling my VCN and buying some more VAB and VXC.


Yea, I'm with RBC but I am pretty sure Questrade works the same. Just be sure to keep it all in the RRSP jar.  So sell VCN to cash and then buy back VAB &/or VXC



2. I do own some stocks, not a giant amount. TD, SHOP and DOL. Are those considered Canadian equities?


It depends if they are on the TSX or not.  TD I'm pretty sure is Canadian. SHOP has both I think and I'm not familiar with DOL. So depending on what dollars they are held in they are either Canadian equities or US.  You may also want to check if they are dividend paying. I have a non-dividend paying single Canadian stock in my TFSA.




3. I hold some VDY in my RRSP. Is there a better place for it? Should I buy both VCN and VDY in my theoretical unregistered account?


If your RRSP is not maxed out you can hold it in there. But as it gets close to the overflow stage I would focus on Bonds or Foreign equities in my RRSP and buy new VDY in my non registered.  If it is just a few thousand I wouldn't touch it.  Just re-balance in the future to for better tax efficiency.  That few thousand in VDY in your RRSP is going to be such a small amount of your portfolio I wouldn't bother. But my RBC fees are $10/trade, I think Quest-trade is better.








NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #22 on: March 20, 2017, 08:11:20 AM »
What would you do?

I almost wish I could go back in time to when I was with a financial advisor.... if I got a chunk of money I'd just throw it at them, and let them do the work... oh wait! I was paying through the wazoo for that. J/k!

Okay I did some spreadsheeting. The first chart is my current asset allocation. The stocks I hold were all purchased on the TSX, so I am counting them in my Canadian equities.

The charts two and three are proposed rebalancing scenarios. I can either put all money in my margin/unregistered account ($50,000) into all Canadian equities, or I can split it between Canadian and International equities. Can someone remind me what the downside is to holding VXC in a taxable account? Any other suggested options are also welcome.

Once I do my taxes and see what further RRSP contribution room I have, I can put more money into VXC to start increasing my international equities. Since I have a hybrid DB/DC pension at work, and work part-time, but also have a side gig, it is very hard to calculate my RRSP room and I'd rather just wait for my income tax statement and go from there.

I fear I am starting to get bogged down in the tiny details. I'd really like to maximize my tax efficiency going forward and make sure my AA between accounts is optimal for my ER in 10-15 years. I also truly appreciate all help I'm getting here :)

Retire-Canada

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #23 on: March 20, 2017, 08:17:10 AM »
I would go option #2. Having 40% CDN stocks seems too high for me. I hold 30% CDN stocks and then 70% the rest of the world.
« Last Edit: March 20, 2017, 10:00:12 AM by Retire-Canada »

Mr. Rich Moose

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #24 on: March 20, 2017, 09:27:39 AM »
I would go option #2. Having 40% CDN stocks seems too high for me.

I agree. Canadian stocks make up just 3% of the global market. If you're lumping US with international, I would go no more than 20% Canadian myself.
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NorthernDreamer

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #25 on: March 20, 2017, 10:16:05 AM »
I would go option #2. Having 40% CDN stocks seems too high for me.

I agree. Canadian stocks make up just 3% of the global market. If you're lumping US with international, I would go no more than 20% Canadian myself.

Makes sense. What is the downside of holding VXC in my unregistered account?

Retire-Canada

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #26 on: March 20, 2017, 10:24:10 AM »
Makes sense. What is the downside of holding VXC in my unregistered account?

You get taxed at a higher rate than CDN equities.

Mr. Rich Moose

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #27 on: March 20, 2017, 10:32:49 AM »
Makes sense. What is the downside of holding VXC in my unregistered account?

First, you'd be better off holding XAW.TO as it is somewhat more tax efficient in its structure. The main downside is that all dividends are taxed at your marginal tax rate. You will however get back a credit on your tax return for foreign taxes paid.

At current yields, this shouldn't be too much of a concern. At middle range tax rates, it will have less than a 0.5% drag on the compounding performance of the fund's total return. By that I mean if the total return of the fund of 7%, you're net return will actually be around 6.5% after the tax bill.

If you're in higher tax brackets, you can always move to a swap-based allocation down the road when you're more comfortable with self-managing. For example instead of your allocation to XAW.TO, go 50% HXS.TO and 30% HXX.TO, and 20% VA.TO. Those are unhedged ETFs tracking the return of the S&P 500, Eurostoxx 50, and FTSE Developed Asia Pacific indices. This will also give you foreign currency exposure like XAW.TO. You would then put the VA.TO part in a registered account as it pays a dividend, but the other two are swap based only and don't pay distributions, essentially tracking the total return of those indices.
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Retire-Canada

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #28 on: March 20, 2017, 10:37:40 AM »
The main downside is that all dividends are taxed at your marginal tax rate. You will however get back a credit on your tax return for foreign taxes paid.

Keep in mind you are not taxed by the CRA on the dividends you receive [say $100] you are taxed on their full value [say $125] before any foreign withholding taxes were applied. Secondly you only get to deduct up to 15% foreign tax in a taxable account regardless of how much tax you actually had withheld.
« Last Edit: March 20, 2017, 10:40:25 AM by Retire-Canada »

Prairie Stash

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Re: Best index funds to hold in a Canadian non-registered account
« Reply #29 on: March 22, 2017, 01:18:54 PM »
I would go option #2. Having 40% CDN stocks seems too high for me.

I agree. Canadian stocks make up just 3% of the global market. If you're lumping US with international, I would go no more than 20% Canadian myself.

Makes sense. What is the downside of holding VXC in my unregistered account?
In Canada, any dividends from Canadian companies get taxed at a lower rate. Foreign dividends pay higher tax, so hold foreign stocks in registered accounts where it doesn't matter. At the end of the day you own the same funds, it's just making sure you pay the least in taxes.

I'm rewording the previous 2 posts. We all said the same thing.