Author Topic: Canada: Investing Tax Free Savings Accounts (TFSA)  (Read 3519 times)

IngaB

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Canada: Investing Tax Free Savings Accounts (TFSA)
« on: December 14, 2017, 09:21:55 PM »
Good evening fellow Canadians,

Where are you investing your TFSA retirement savings?

Husband and I are somewhat risk averse. Our FA suggested Russel Investments Diversified Monthly Income Fund -Series B-5 with a MER of 2.12%, but I am not sure, the MER seems way too high.

Our RRSP funds are currently with Tangerine (Balanced Growth Investment Fund).

We plan to contribute the maximum amount into our TFSA every year. We are 38 and 41 years old with a 1-year old baby and plan to retire in our early 60s.

Thank you in advance for your advice in this matter.


tyir

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #1 on: December 14, 2017, 09:30:40 PM »
I follow a diversified index fund based approach. This gives a diversifications across most countries while keeping fees low.

canadiancouchpotato.com is the best online resource on this subject for canadians. Check out Dan's model portfolios. I personally have a slightly more complicated approach with the US and ex-NA being seperate funds, but you can choose which model you like best.

I use this across my RRSP/TFSA/unregisted accounts/

For what it's worth - I agree with  you, a MER above 2% is incredibly high.

IngaB

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #2 on: December 14, 2017, 10:02:36 PM »
Thank you, Tyir.

snacky

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #3 on: December 14, 2017, 10:10:28 PM »
I use Qtrade and have a self-directed TFSA, using the Canadian Couch Potato portfolio suggestion. A 2% MER is terrible - there are so many better ways to do this!

BrakeForTurtles

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #4 on: December 14, 2017, 10:15:24 PM »
I went with the 80/20 stock/bond index fund portfolio recommended on Canadian portfolio manager, but swapped out any non-Vanguard funds for the Vanguard equivalent. They have a nifty link to a quiz on the Vanguard website that helps you work out your risk tolerance. CCP is definitely a great resource as well.

I do all my investing through questrade and highly recommend it if you don't mind being a little hands on. I invest with each paycheck so it takes about 10 minutes every two weeks.

GreatLaker

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #5 on: December 15, 2017, 09:01:26 AM »
To answer your first question, my TFSA is with TD Direct Investing, split equally among Canada, US and Global equity ETFs. I do have some fixed income in my RRSP. TDDI is not the cheapest broker but I don't trade much so the fees are not really an issue for me.

I really believe that to succeed, investors need to learn and make their own decisions. Here are some great resources:

If You Can: How Millennials Can Get Rich Slowly by William Bernstein is a free ebook. The author says more in 16 pages than many say in hundreds. It is US based, but you can substitute Canadian funds such as the Canadian Couch Potato portfolios that others already mentioned.
https://www.etf.com/docs/IfYouCan.pdf

Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam is a great story of frugal living and low-cost investing, written by a Canadian with a global perspective. I borrowed it from the library.
https://www.amazon.ca/Millionaire-Teacher-Wealth-Should-Learned/dp/1119356296

Finiki the Canadian Financial Wiki is an excellent online learning resource.
http://www.finiki.org/wiki/Getting_started

Regarding the Russell Fund your advisor recommended, did he say why? It has about 35% fixed income with the rest split equally among Canadian, US and global equities. You could easily replicate that with one of the Canadian Couch Potato portfolios with much lower cost. Of the 2% MER, probably half of that goes back to the advisor, as compensation for his advisory services. But most advisors are under no obligation to act in their clients' best interest. They only have a "suitability standard" that is they must make recommendations that are suitable for their clients' investing risk tolerance and timeline. So they recommend funds like Russell that pay them 1%, not Tangerine funds that don't pay them at all. 2% MER does not sound like much, but if a balanced mutual fund returns 8% per year as a long term average, 2 percentage points is actually 25% of the fund's return. Ouch. This Vanguard Canada page explains the impact of cost in further detail: https://www.vanguardcanada.ca/individual/articles/education-commentary/etf-information/learn-about-why-costs-matter.htm

The Tangerine Balanced Growth fund you are in has better performance, as it would be expected to since it has lower fixed income content and lower fees. It is slightly more risky with its 25% fixed income vs. 35% for the Russell Fund. But that's not a real concern with your long timeline. Tangerine Balanced Fund is closer to the Russell fund, with 40% fixed income, and its performance is still better than the Russell fund. The only reason to switch to the Russell fund is if you think the adviser's services are worth ~25% of your annual returns.

You can see the performance of the funds on Morningstar here:
Russell: http://quote.morningstar.ca/QuickTakes/fund/Performance/f_Perf.aspx?t=F000005PDQ&region=CAN&culture=en-CA
Tang Balanced Growth: http://quote.morningstar.ca/QuickTakes/fund/Performance/f_Perf.aspx?t=F000000S6A&region=CAN&culture=en-CA
Tang Balanced: http://quote.morningstar.ca/QuickTakes/fund/PortfolioOverviewNew.aspx?t=F000000S68&region=CAN&culture=en-CA

What should you do? First, don't be in a rush to switch away from the Tangerine fund. It's a good, balanced, low cost fund. Second, have some fun with the adviser. Print out the Morningstar performance results for the Russell and the 2 Tangerine funds and ask why the Russell fund is recommended. Ask how they get paid, and if the Russell fund pays them any fee. He/she will have lots of reasons that are all bafflegab designed to confuse and scare you into his/her clutches. Third, study investing a bit more to decide if you want to take a more active role. You could basically replicate the Tangerine fund you are in with 3 ETFs: 25% ZAG, 25% VCN and 50% XAW, and lower the MER from 1.07% with Tangerine to 0.15%. But you will have to open a brokerage account, buy 3 funds instead of one, and rebalance annually to keep the portfolio to your desired allocation, since equities will most likely grow faster than bonds. Really not that difficult :)

You can check out the CCP portfolios here: http://canadiancouchpotato.com/model-portfolios-2/
« Last Edit: December 15, 2017, 11:49:15 AM by GreatLaker »

IngaB

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #6 on: December 15, 2017, 12:36:27 PM »
Dear Greatlaker, BrakeForTurtles and Snacky:

You guys are amazing with your tips! Thank for your taking the time and being so thorough and specific.

I will definitely read CCP's articles on his website about TFSAs and model portfolios. I will also borrow from the Toronto Public library the books that you have recommended.

I believe our FA (who owns her own independent financial planning firm) gets paid from commissions from products her clients purchase through her. We invested into RESP for the baby and our term life insurance through her firm.

She wants us to move our existing and new RRSP and TFSA moneys into Fidelity Investments and Russel Investments (funds with MER of over 2%) through her firm. But I think I will stick to my guts.  Greatlaker is right- there are other funds out there with the same performance but cheaper fees.

Have a great weekend everyone!!!

Inga

RichMoose

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #7 on: December 15, 2017, 04:43:07 PM »
I believe our FA (who owns her own independent financial planning firm) gets paid from commissions from products her clients purchase through her. We invested into RESP for the baby and our term life insurance through her firm.

She wants us to move our existing and new RRSP and TFSA moneys into Fidelity Investments and Russel Investments (funds with MER of over 2%) through her firm. But I think I will stick to my guts.  Greatlaker is right- there are other funds out there with the same performance but cheaper fees.

Have a great weekend everyone!!!

Inga
I hope you recognize the conflict of interest your FA has. She's pushing crappy products on you, which are very highly likely to underperform low cost index ETFs, so that she can lock you into a product that pays her very high commissions. With B-series funds she will earn a nice up front commission (often up to 5%) when you purchase the fund, and a trailing fee every year for as long as you hold it. You will probably be heavily penalized for early redemptions, including changing to another fund within 3-7 years. Quite frankly Fidelity Funds is plain awful, right there with IG and Mackenzie.

There is no reason to ever invest in mutual funds which are not D-series, E-series, or F-series. Better yet, there's really no reason not to invest in ETFs. If you insist on working with an advisor to help you navigate your investments and provide additional financial services like tax advice, you should always go with a fee-only advisor at a transparent rate of 1% or less depending on your assets.

Best luck and stick to your guns on this. Be willing to leave her if she can't accommodate. Never forget that it's your money.

Retire-Canada

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #8 on: December 15, 2017, 06:12:13 PM »
Good evening fellow Canadians,

Where are you investing your TFSA retirement savings?

VUN - total US stock market MER 0.16%
VCN - total CDN stock market MER 0.06%
VIU - developed int'l MER 0.23%
VEE - emerging markets MER 0.24%

Paying over 2% MER + additional fees is crazy talk. Run don't walk away from that FA.

c-kat

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #9 on: December 19, 2017, 12:12:35 PM »
It seems most of you hold international ETFS in your TFSA. My understanding is that you have to pay tax on international dividends in a TFSA. How exactly does this work?

I currently put my US and International ETFS in my RRSP and my Canadian ETFS in my TFSA. It does make rebalancing difficult when they are in different accounts.

Ckat

RichMoose

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #10 on: December 19, 2017, 12:20:27 PM »
It seems most of you hold international ETFS in your TFSA. My understanding is that you have to pay tax on international dividends in a TFSA. How exactly does this work?

I currently put my US and International ETFS in my RRSP and my Canadian ETFS in my TFSA. It does make rebalancing difficult when they are in different accounts.

Ckat
Yes the withholding tax on the dividends (typically ~15% of the dividend amount) can not be claimed back when in a TFSA. This makes international stocks which pay high dividend rates less appealing in the TFSA account.

However, it's just the tax that's withheld at the fund manager level (in the form of a smaller dividend payment). When international ETFs are held in a TFSA, you don't have to report the dividends as income on a tax return and pay tax on that.

Retire-Canada

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #11 on: December 20, 2017, 09:26:47 AM »
It seems most of you hold international ETFS in your TFSA. My understanding is that you have to pay tax on international dividends in a TFSA. How exactly does this work?

I currently put my US and International ETFS in my RRSP and my Canadian ETFS in my TFSA. It does make rebalancing difficult when they are in different accounts.

Ckat

Well when you have a large portfolio and hold only a small % of CDN stocks you end up having some non-optimal assets in your TFSA.

One thing to note is that unless your international investments are actually held in the underlying stocks you don't get the dividend tax treaty benefit in a RRSP.  So you have to hold VTI in the RRSP not VUN [which then holds VTI in a CDN wrapper].

BrandonP

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #12 on: December 21, 2017, 02:40:27 PM »
I assume reading CCP, that there is really not much difference between Ishares and Vanguard. Would one of them be considered 'safer'?


RichMoose

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #13 on: December 21, 2017, 03:13:46 PM »
I assume reading CCP, that there is really not much difference between Ishares and Vanguard. Would one of them be considered 'safer'?
No difference really and one is not safer than the other. They are both compelled to hold the underlying assets they claim and must report on this all the time. Most post their ETF NAVs daily.

There is a difference between the ETFs they offer, the liquidity, the fees, and the index families they track. For tax purposes as explained above, it's usually best to go with the ETF which holds stocks directly rather than one which holds a US-listed ETF.

By and large for the average investor these differences are a wash.
« Last Edit: December 21, 2017, 03:31:59 PM by Mr. Rich Moose »

BrandonP

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #14 on: December 21, 2017, 03:28:46 PM »
I assume reading CCP, that there is really not much difference between Ishares and Vanguard. Would one of them be considered 'safer'?
No difference really and one is not safer than the other. They are both compelled to hold the underlying assets they claim and must report on this all the time. Most post their ETF NAVs daily.

There is a difference between the ETFs they offer, the liquidity, the fees, and the index families they track. For tax purposes as explained above, it's usually best to go with the ETF which holds sucks directly rather than one which holds a US-listed ETF.

By and large for the average investor these differences are a wash.

I figured as much. Thank you.

I already have 3 Vanguard investments in my TFSA (VXC, VGG, & VUN), so I'm looking to potentially go for XAW with the new year almost upon us.

sieben

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #15 on: December 21, 2017, 06:01:21 PM »
One thing to keep in mind is if you add XAW to VXC, VGG and VUN you will end up with some overlap there.

In fact XAW and VXC hold a very similar array of stocks.
I only mention that pairing because it may make sense to just stick with VXC for simplicity.

In addition to that there would be further overlap between VGG + VUN which hold US stocks and XAW/VXC which also hold US stocks.

Just something to keep in mind, it's easy to stray from any planned asset allocation when you start working with funds that start overlapping with each other.

BrandonP

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #16 on: December 22, 2017, 12:33:46 PM »
One thing to keep in mind is if you add XAW to VXC, VGG and VUN you will end up with some overlap there.

In fact XAW and VXC hold a very similar array of stocks.
I only mention that pairing because it may make sense to just stick with VXC for simplicity.

In addition to that there would be further overlap between VGG + VUN which hold US stocks and XAW/VXC which also hold US stocks.

Just something to keep in mind, it's easy to stray from any planned asset allocation when you start working with funds that start overlapping with each other.

Thank you for the information.

I'm looking at XAW because it is actually cheaper to buy at the moment. If it is basically the same thing as VXC, then I'm getting basically the same thing, but at a lower price. Should I not be doing it this way for a reason? Am I missing something with this strategy?

Heckler

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #17 on: December 22, 2017, 01:01:31 PM »
10k of VXC is worth 10k
10k of XAW is worth 10k

#units x price paid is irrelevant- you'd own the same total value.  I would stick with one asset and build it up so that it can compound.

BrandonP

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #18 on: December 22, 2017, 01:05:42 PM »
10k of VXC is worth 10k
10k of XAW is worth 10k

#units x price paid is irrelevant- you'd own the same total value.  I would stick with one asset and build it up so that it can compound.

Duly noted! Yes, that is what I was missing!

Eckhart

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #19 on: December 22, 2017, 08:20:08 PM »
+1 for CCP model portfolios.  I started in 2015 and am using VCN (30%), VXC (60%), and VAB (10%).  Very simple and easy to manage.  If your starting out, I would go with the 2017 model portfolio ETFs.

On the CCP you should be able to find a rebalancing spreadsheet from squawkfox.com.  Makes rebalancing a breeze.  I put 6K into my TFSA the other day.  Using the spreadsheet, I was able to figure out what I needed to purchase then made the trades on questrade.  Total time needed, less than 15 minutes on my lunch break.

If you can't find the spreadsheet, let me know and I'll post a copy.

BrandonP

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #20 on: December 23, 2017, 02:23:35 PM »
+1 for CCP model portfolios.  I started in 2015 and am using VCN (30%), VXC (60%), and VAB (10%).  Very simple and easy to manage.  If your starting out, I would go with the 2017 model portfolio ETFs.

On the CCP you should be able to find a rebalancing spreadsheet from squawkfox.com.  Makes rebalancing a breeze.  I put 6K into my TFSA the other day.  Using the spreadsheet, I was able to figure out what I needed to purchase then made the trades on questrade.  Total time needed, less than 15 minutes on my lunch break.

If you can't find the spreadsheet, let me know and I'll post a copy.

If you could, it would be much appreciated!

Eckhart

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #21 on: December 23, 2017, 05:19:01 PM »
+1 for CCP model portfolios.  I started in 2015 and am using VCN (30%), VXC (60%), and VAB (10%).  Very simple and easy to manage.  If your starting out, I would go with the 2017 model portfolio ETFs.

On the CCP you should be able to find a rebalancing spreadsheet from squawkfox.com.  Makes rebalancing a breeze.  I put 6K into my TFSA the other day.  Using the spreadsheet, I was able to figure out what I needed to purchase then made the trades on questrade.  Total time needed, less than 15 minutes on my lunch break.

If you can't find the spreadsheet, let me know and I'll post a copy.

If you could, it would be much appreciated!

Here you go!  Once you have the investment column dollar amount, divide that by the cost of a single ETF to find the number of shares of the ETF to purchase.  For single ETF cost, I use the bid price plus about 8 cents.  Since it is a limit order, you will still only pay bid price plus a cent or two.

You can alter the funds and desired percent as you see fit based on the asset allocation you decide.

Happy investing!

John Doe

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #22 on: December 25, 2017, 02:27:38 PM »
As I am constructing our portfolio for income generation we have our TFSAs stuffed with REITS to avoid the tax on the distributions.  In addition to REITS I put a significant amount into BNS which was supposed to be temporary until I figured out what I wanted to do with the money. Being lazy in determine where I wanted to invest that cash has actually proven to be pretty good over the last couple of years. 

eueueu

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #23 on: December 26, 2017, 10:49:46 AM »
Depending on how much you wish to invest, and your comfort levels with computer/internet, there is robo advising. They will balance your fund for you to keep it in line with your risk profile. I currently use Wealthsimple and have been happy with them so far.

There are management fees, but it is lower than Tangerine. You can also get referral links to lower your management fee, download the app, etc. My Wealthsimple referral link is below and is free for anyone to use. It will give you another $10 000 managed for free for one year.

wealthsimple.com/invite/NV-OUW

Management fees drop once your account is $100 000 or more, plus your get VIP airport lounge passes and other perks.

The con is that their funds have more then 4 ETFs. I plan to stick with Wealthsimple, until the value of the fund reaches a point where I just want to simplify things and use Questrade instead.


BrandonP

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Re: Canada: Investing Tax Free Savings Accounts (TFSA)
« Reply #24 on: December 27, 2017, 01:52:40 PM »
+1 for CCP model portfolios.  I started in 2015 and am using VCN (30%), VXC (60%), and VAB (10%).  Very simple and easy to manage.  If your starting out, I would go with the 2017 model portfolio ETFs.

On the CCP you should be able to find a rebalancing spreadsheet from squawkfox.com.  Makes rebalancing a breeze.  I put 6K into my TFSA the other day.  Using the spreadsheet, I was able to figure out what I needed to purchase then made the trades on questrade.  Total time needed, less than 15 minutes on my lunch break.

If you can't find the spreadsheet, let me know and I'll post a copy.

If you could, it would be much appreciated!

Here you go!  Once you have the investment column dollar amount, divide that by the cost of a single ETF to find the number of shares of the ETF to purchase.  For single ETF cost, I use the bid price plus about 8 cents.  Since it is a limit order, you will still only pay bid price plus a cent or two.

You can alter the funds and desired percent as you see fit based on the asset allocation you decide.

Happy investing!

Thank you!