Author Topic: Clarification on my future investments, TFSA  (Read 956 times)

AlwaysDreaming

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Clarification on my future investments, TFSA
« on: October 14, 2016, 03:51:26 PM »
Hi, I'm 25 years old and currently have about 50k in my TFSA thanks to savings and gaining profit from the stock market. I'm currently invested all of the 50k into CIBC (CM.TO) for the dividends. From reading the MMM posts and Canadian Coach Potato, both recommended Vanguard as one of the better options. I read the posts and could not understand how is it better when the dividends is much higher for CM.TO than Vanguards. Even with MER, the bank still comes significantly higher than the latter. Are the only reasons Vanguard is the preferred safer choice is because of the MER and diverification? I do not understand so I'm hoping fellow Mustachians can help explain this to me. Thanks and much appreciated! =)

swiper

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Re: Clarification on my future investments, TFSA
« Reply #1 on: October 14, 2016, 03:57:37 PM »
diversification.  With the bulk (assuming here) of your investments in a single stock, diversification should be your primary focus.

Brokenreign

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Re: Clarification on my future investments, TFSA
« Reply #2 on: October 14, 2016, 04:57:31 PM »
Diversification. Anyone that has been investing for more than a few years has been badly burned by individual stocks at least once. As I am particularly stupid, it has happened to me four times. Three of those four times came from chasing high dividend yields.

If you're after yield and want to stick with Canada, Vanguard has VDY. I've had my eye on iShares Global Monthly Dividend Fund (CYH). It yields about 4% and is broadly diversified. The MER is a tad high for an ETF and hedges have traditionally been a drag on performance. I don't have a lot of faith in the future of the Canadian dollar though so I think the hedge will be an extra benefit in this case.

I think you'd want to hold CYH in an RRSP as it's primarily US companies paying (CYH directly holds the underlying stocks. It's not an ETF of ETFs). I don't believe that there's any withholding tax on US dividends received into a Canadian RRSP. Or in a taxable account as you would then get a credit for foreign withholding taxes. I have to e-mail iShares to figure out the withholding taxes though. Or someone can just correct me here, as I am oft wrong.