Author Topic: Canadian: Refinancing for $115k, maxing TFSA - then what?  (Read 1507 times)

Healthie

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Canadian: Refinancing for $115k, maxing TFSA - then what?
« on: October 28, 2021, 10:47:05 AM »
Edit Nov 9/21: I wrote up something a bit more specific for another forum than my initial post:

Hi everyone,



I'm 30, I make about 85k/year with overtime, I recently refinanced my house and have 115k to invest. I work in healthcare and will get a defined-benefits pension; earliest age is at 55, and I would like to retire at 50. My partner also works in healthcare and will make about the same as I do and receive the same DB pension. We presently have no children, but plan to have 2 within 5 years. We are not married yet. We will be moving to a new city this summer and getting a much more expensive house (bought mine for 200k 3 years ago; next house will likely cost 650k+). We have family that will be financing this, and we will not need a down payment or pay interest on it. We will be paying them something, possibly $2000/month to re-pay it. I may go to 3-4 days a week for periods, and retire later if need be. My car is paid off.  My present investments and questions:



TFSA: $44,894 contributed; mostly in TD-e series indexes, a few grand in AMC. I would like to sell off my E-series investments and buy one all-in-one index with a lower MER. What would you recommend for this? I will be keeping the AMC until it takes off and re-investing when I sell it. My plan is to contact the CRA and confirm exactly how much room I have and max my TFSA out.



RRSP: Is contributing to an RRSP a good option after the TFSA, when considering I will receive a DB pension? Because the RRSP money is taxed when you withdraw it, could I buy a dividend-paying index to avoid the taxes of selling; similar to a non-registered account? What are some good indexes to look at? The CRA website says I have about 40k to contribute; and I have never contributed to an RRSP before. Am I able to max this out with this refinanced money, and would my income be taxed at the lower bracket (85k-40k=45k?).



Non-registered Accounts: I understand these investments are taxed at 50% capital gains when sold, and holding a dividend-paying index is a good option to avoiding taxes. I've also read something about whether your holdings are US or Canadian; but I am unclear on the impact.



Crypto: Although I need to do some more research on this, I am interested in putting 5k into crypto. I know there is a lot of reading out there, and I still need to research a bit.



Monthly/yearly deposits: Presently I put $300/month as automatic deposits into the 3 E-series indexes I own in my TFSA - I am assuming I will max out my TFSA, RRSP, and then invest in my non-registered account. I understand some people save their money for a few months and deposit larger sums fewer times/year than the $300/month I do. Is there a method you like around depositing investments?



Happy to answer questions and I will be monitoring this thread.
« Last Edit: November 09, 2021, 07:11:42 PM by Healthie »

MustacheAndaHalf

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #1 on: October 28, 2021, 11:02:41 AM »
You will find more knowledgeable people on Canadian retirement accounts in the tax area for Canada.  Despite the name, it's open to various non-tax topics as well.

Dogastrophe

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #2 on: October 28, 2021, 11:40:04 AM »

In addition, some reading has told me when my investments in the E-series are big enough, it may be worthwhile to sell them and buy an index with a lower MER for better returns; any suggestions? Iíve read VGRO & XGRO are good all-in-ones; any others?


Define "big enough"? What is stopping you from moving all to an index fund now?

FWIW, with exception of a small bank play that I bought (and still holding) in March of 2020 for the ~8% dividend yield, the remainder of my TFSA is in an S&P500 index (Canadian, non hedged version, mer of 0.08%).



TrMama

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #3 on: October 28, 2021, 11:40:26 AM »
Step one, pull up your Notice of Assessment and figure out how much room you have in your RSP. Even though the money you put into it will eventually be taxed when you withdraw, I'd still max it out before investing in a taxable account. The idea is that your income in retirement will be less than your current income, so the amount of tax you'll pay will be less. Plus, while the cash is invested any dividends you receive won't be taxed at all. Never give CRA money now when you can opt to make them wait till later.

Be very, very careful in accepting significant amounts of money from family. If the relationship sours, make sure you always have an exit strategy that you won't hesitate to deploy. These kinds of situations frequently add a huge amount of stress to people's lives.

I believe once your household accounts reach $50K investing gets cheaper with TD. As long as you have a Webbroker account with them, you should be able to buy whatever you like. This is what DH and I do. However, Questrade is supposed to be much cheaper and offers all the same index funds. The Canadian Couch Potato blog has a useful asset allocation and lots of other good investing info.

Addendum: me and my girlfriend are likely to inherit a lot of money one day, likely a million or more each.

Never, ever count on an inheritance. Two reasons:

1. Your parent may need the money for their own care as they get older. Or they may do something foolish with it so there's nothing left for you. Or they may cut you out of the will in their last hour.

2. Counting on an inheritance from a parent is a great way to sour your relationship with them and/or your siblings. Many families have been destroyed by the tension that results when an adult child disagrees with their parent's decisions regarding their money or when the parent tries to control their child by threatening to reduce the child's inheritance. You're an adult. Make your own way in life independent of your parent's assets. If at some point their assets become yours then you can update your retirement plan.


Healthie

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #4 on: October 28, 2021, 12:00:54 PM »

In addition, some reading has told me when my investments in the E-series are big enough, it may be worthwhile to sell them and buy an index with a lower MER for better returns; any suggestions? Iíve read VGRO & XGRO are good all-in-ones; any others?


Define "big enough"? What is stopping you from moving all to an index fund now?.

FWIW, with exception of a small bank play that I bought (and still holding) in March of 2020 for the ~8% dividend yield, the remainder of my TFSA is in an S&P500 index (Canadian, non hedged version, mer of 0.08%).



A lack of knowledge for sure - I do automatic deposits of $300/mo into the 3 e series equities/month; Iíve wanted an index with a lower MER and comparable return rate once I get a big enough nut to make it worth it, so Iím not dinged with multiple 9.99$ buying fees for Smaller share amounts. This refinance money is going to make it worthwhile. Would you mind sharing the ticket # of your index? My plan is to deposit all my investments into one index with a better MER, and continue to do monthly deposits into the E series funds until I get at least a few grand to deposit into the index. Well done with the bank buy - Iíve heard from multiple sources banks are a good buy.

Thanks for your response TRmama! I have the max amount of room in my RSP account; I think around 40k. My concern is the inheritence May bump me into a higher bracket with the returns from what I invest that money into (again, eventually). Thank you for the warning, re: borrowing money & inheritence. I bring it up for the consideration of the RSP and less a concern for the relationship and possible downfalls. It is a good reminder, as I have some strong investing opinions, and I should probably rethink my stance during some of these conversations.

Dogastrophe

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #5 on: October 28, 2021, 01:29:58 PM »

A lack of knowledge for sure - I do automatic deposits of $300/mo into the 3 e series equities/month; Iíve wanted an index with a lower MER and comparable return rate once I get a big enough nut to make it worth it, so Iím not dinged with multiple 9.99$ buying fees for Smaller share amounts. This refinance money is going to make it worthwhile. Would you mind sharing the ticket # of your index? My plan is to deposit all my investments into one index with a better MER, and continue to do monthly deposits into the E series funds until I get at least a few grand to deposit into the index. Well done with the bank buy - Iíve heard from multiple sources banks are a good buy.


I've bought Vanguard's 'VFV' index fund.

I certainly appreciate the fee end of things. We buy quarterly to minimize the fees. Downside is $$ sitting on sidelines for up to 3 months between buys. You may be able to find an equiv fund at your current brokerage (blackrock has one - I think it is XUS??)

Heckler

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #6 on: October 31, 2021, 02:18:05 PM »
https://newsroom.bmo.com/2021-06-01-BMO-InvestorLine-Announces-No-Commission-Fee-ETFs-for-Self-Directed-Clients

no more trading fees for me on favourite Vanguard and Ishares ETFs, no matter the transaction value.  I've validated their claim by even buying a couple of units at a time with dividend cash that wasn't automatically reinvested.

Heckler

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #7 on: October 31, 2021, 02:21:03 PM »
and a lack of knowledge is only resolved by yourself.  :)

Start here if it's low cost index investing you want to learn about:

https://canadiancouchpotato.com/

https://www.finiki.org/wiki/Main_Page

https://www.bogleheads.org/wiki/Getting_started

grmagne

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #8 on: November 01, 2021, 01:14:51 PM »
MMM's old buddy "Mr. Frugal Toque" wrote an article 8 years ago on this site about how to optimize retirement income for the Canadian mustache lifetstyle.
https://www.mrmoneymustache.com/2013/09/21/canadian-investing-with-mr-frugal-toque-part-1/

I've been using a lot of the strategies he discussed, especially the part about investing in RRSPs with the intention of drawing them out tax-free during the early retirement phase, before OAS and CPP kicks in. They're great because you get tax refunds while contributing to your RRSP but will effectively pay zero tax if you withdraw small amounts in years where you have little income.

Stasher

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #9 on: November 07, 2021, 01:11:38 PM »
Mark from My Own Advisor runs two very good websites with loads of Canadian Content, he actually just published one on maxing just your TFSA if that is all you wanted to do.
https://www.cashflowsandportfolios.com/can-you-retire-using-just-your-tfsa/
His main website
https://www.myownadvisor.ca

Healthie

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #10 on: November 07, 2021, 09:15:06 PM »
Thank you all for the recommendations! I have also considered a rental, and was really hoping to get one, but frankly it does not seem likely to find something good right now. I am having decision making fatigue about this; but my goal will be to spend a bit of down time this week to figure out what Iíll do.

Healthie

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #11 on: November 09, 2021, 07:12:13 PM »
Just a note: I wrote a more specific set of questions for another finance forum and have updated my OP.

Dogastrophe

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #12 on: November 10, 2021, 05:20:33 AM »

Monthly/yearly deposits: Presently I put $300/month as automatic deposits into the 3 E-series indexes I own in my TFSA - I am assuming I will max out my TFSA, RRSP, and then invest in my non-registered account. I understand some people save their money for a few months and deposit larger sums fewer times/year than the $300/month I do. Is there a method you like around depositing investments?


In last couple of years, we (my wife and I) made a total of 10 buys per year. 8 for RRSP (2 per quarter), 2 for TFSA. This is solely to minimize trade commissions (Scotia iTrade, 9.99/trade). Each week we move a set amount into a separate bank account until it reaches our buy amount, then we move it to the investment account(s).



sixwings

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #13 on: November 12, 2021, 09:28:36 AM »
I use questrade for buying my ETFs, ETF purchases are free. My portfolio breakdown is:

VGRO - 60% (.2%, all-in-one index ETF, holds like 11,000 stocks)
VFV - 10% (.08%, S&P500)
TEC.TO & VGT - 30% - VGT is .1% and TEC.TO is .48% i think, it's tech leader etfs, I'd make this portion a lot bigger but my wife isn't comfortable with it)

I have the TEC.TO & VGT and VFV in my wife and I's TFSA as they are the highest growth, then the VGRO and whatever VFV/TEC/VGT is left over in RRSPs, and then finally the last is the VGRO in margin accounts.

I like questrade, fee's are really really low when buying ETFs and the service is reasonably good for the price. A lot of people like wealthsimple but the problem with wealthsimple, at least last i checked, is they don't allow you to hold USD, so anytime you buy or sell a USD ETF there's a currency conversion of 1.5% which is BRUTAL. VGT is in USD. Because questrade is so cheap we contribute money every paycheck and buy more ETFs every pay check.

I'm heavy on tech, particularly american tech companies (canada's public co tech scene sucks a lot in comparison), I think it's the future of the economy and I think tech is mostly infinite growth as it's constantly evolving. I'd be 100% in tech ETFs if my wife let me. I've been slowly increasing the % allocated to tech over time though.   

Healthie

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #14 on: November 12, 2021, 11:30:48 AM »
Thanks Sixwings - In some reading I've done it sounds like it is beneficial to invest a dividend-paying canadian index in the margin account for tax benefits, but I'm unable to find specific information on this - do you have any articles? Is there a reason you're holding VGRO (which is growth, I think?) in your margin account? Wouldn't you incur more taxes when you sell due to the capital gains?

sixwings

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #15 on: November 15, 2021, 02:04:32 PM »
Thanks Sixwings - In some reading I've done it sounds like it is beneficial to invest a dividend-paying canadian index in the margin account for tax benefits, but I'm unable to find specific information on this - do you have any articles? Is there a reason you're holding VGRO (which is growth, I think?) in your margin account? Wouldn't you incur more taxes when you sell due to the capital gains?

Canadian dividends are great if you want income. If you're in asset accumulation and growth then it's not as great but some people do it. My allocation is similar to MMM and bogleheads around passive index investing. I like VEQT/VGRO for long term growth, not worried about capital gain taxes as it's only taxed when sold which will be in like 20+ years and only in my margin account, and only 50% of the capital gains is taxable. VEQT/VGRO are what i expect to be my lowest growth stocks, with my tech being my highest. I put my lower growth ETFs into my RRSP and margin accounts and my highest growth into my TFSA. Some will put ETFs that pay US dividends into their RRSP to avoid withholding taxes as well but for me i receive very little international dividends so it's a non-issue for me right now and just complicates it a lot more than necessary at the moment. I try not to overthink it. 

Healthie

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #16 on: November 15, 2021, 07:14:24 PM »
Thanks Six - I don't need income right now, just looking for growth. putting a heavier tech index into a TFSA seems like a smart idea. I'm at the stage of having decision-making fatigue around all of this. It's a lot of small questions. Once the TFSA & RRSP get maxed it gets a bit more complicated when considering taxes.

Stasher

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #17 on: November 17, 2021, 08:55:38 AM »
My TFSA is basically 99% XAW , I have maxed my TFSA every year. I did buy some Apple, Bitcoin(BTCC) and EARK just for fun with the dividend payouts this year instead of more XAW. A tiny amount just to feed my lets see what happens side without any real risk.

sixwings

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #18 on: November 17, 2021, 01:59:28 PM »
Doesnt XAW excluded canada? There's good reasons to have a decent chunk of canada in your portfolio as a canadian to limit foreigh exchange risk, and the TSX outperformed the S&P500 for 2000-2010. VGRO is 25% canada equities and XGRO is 20%.

That said, i dont particularly like most of the canadian economy, most of it is natural resource extration and financials. All of which are very heavily reliant on government legislation. I also don't really see natural resource extraction performing very well over the next few decades, especially in comparison to the tech industry in the US, which is why I more heavily weight US Tech and hold more VFV.

Stasher

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Re: Canadian: Refinancing for $115k, maxing TFSA - then what?
« Reply #19 on: November 17, 2021, 05:28:55 PM »
I have VCN in my RRSP for my Canadian exposure plus VAB for a little bit of bonds. I spread my asset allocation across both platforms. Yes, if only doing the TFSA and you want nice and simple with balanced exposure then VGRO would be my go to choice.