Canada - NR Account Help

[Prairie Stash]

Whats the current recommendations for investing into a NR account? The owner is low income (under $45k/year) so all Eligible Dividends are taxed at -0.72% (the negative is not a typo), noneligible are taxed much higher. A negative rate is new for me, I haven't dealt with it before, it does skew me towards desiring dividends (for the tax break) and NOT using a DRIP (its a pain for the ACB, easier to just invest alongside the new contributions). In Retirement it will decrease Capital Gains tax, also a good thing.

This is my first foray into a low income NR account. If I read this correctly, If I invested in something like VDY - high Yield Canadian Dividend(MER 0.22%) the dividends of 3.98% would result in a tax break (very small). I would then need to re balance the TFSA and RRSP to hold higher American ETF holdings. Of course VCN (MER of 0.06%) has a lower MER, but the taxation on the gains would happen in the future (dividend 2.47% currently). I can assume the first $10-15k of income every year will come from RRSP withdrawals, these gains will fall into the lowest tax bracket.

So I'm going all Canadian ETF held in NR, is there better investments and which is better the higher dividend (higher MER) or the lower MER considering all dividends are tax free?

[Lews Therin]

I would personally buy my own stocks (look at the VDY list, and buy the ones with the best dividend returns) Multiple Banks, Bell, and other strong canadian companies are currently paying 5%+ so you wouldn`t have a MER. These are stocks you`d never sell, and only hold for the dividend return.

Just making sure, You have other investments in your RRSP/TFSA for diversity right?

For you, VDY is a much better option than VCN if you don`t want to look at making your own stock portfolio. There is also the option for Swap ETFs (They do not pay dividends, but rather increase the cost basis, which means you will only pay capital gains).

That said, if the income will never go lower than 45k, dividends are the way to go.

[RichMoose]

So I'm going all Canadian ETF held in NR, is there better investments and which is better the higher dividend (higher MER) or the lower MER considering all dividends are tax free?

Have a peek at XDIV.TO - 0.10% MER and 3.91% trailing yield.
https://www.blackrock.com/ca/individual/en/products/287823/ishares-core-msci-canadian-quality-dividend-index-etf-fund

[Prairie Stash]

So I'm going all Canadian ETF held in NR, is there better investments and which is better the higher dividend (higher MER) or the lower MER considering all dividends are tax free?

Have a peek at XDIV.TO - 0.10% MER and 3.91% trailing yield.
https://www.blackrock.com/ca/individual/en/products/287823/ishares-core-msci-canadian-quality-dividend-index-etf-fund

That would definitely be better.

[Prairie Stash]

I would personally buy my own stocks (look at the VDY list, and buy the ones with the best dividend returns) Multiple Banks, Bell, and other strong canadian companies are currently paying 5%+ so you wouldn`t have a MER. These are stocks you`d never sell, and only hold for the dividend return.

Just making sure, You have other investments in your RRSP/TFSA for diversity right?

For you, VDY is a much better option than VCN if you don`t want to look at making your own stock portfolio. There is also the option for Swap ETFs (They do not pay dividends, but rather increase the cost basis, which means you will only pay capital gains).

That said, if the income will never go lower than 45k, dividends are the way to go.

I tried individual investing before, turns out I hate the additional work and I ended up procrastinating too often. However the individual does make it easier to track ACB and Eligible dividends (tax time will be simple). The spouses preference is to buy it through RBC direct (easier to track then a separate Questrade account), the fees are negligible to buy/sell stocks ($9.95, we tend to buy $5-10K at a time). I can do 4-5 now and add another stock every few months to get a wide diversification.

The Blackrock account is +50% invested in 8 stocks (all financial) and VDY is also heavy that way. Both have about 70% in 10 holdings. Objectively, that's easy to replicate individually. I keep forgetting how non-diversified Canada ETF's can be.

All the TFSA and RRSP room is filled (for both of us), lately I've been shifting weight towards American ETF products in the RRSP and TFSA (I rebalance with new purchases). My finances are starting to get complicated; two people with TFSA/RRSP/NR/work pension accounts, plus some money with an adviser (spouse's investments). I have the RESP's for my kids separated out as well. The NR should be getting $25-30k/year into it plus growth.

Income will never go over $45k. She was higher but went part time, there's no chance of returning to full time at this point (she was offered full time and turned it down).

[Lews Therin]

You could always go ETF right now, and move to individual stocks when you`ve stopped accumulating.

That way there would be no need for extra work, you won`t be adding more, just living off the withdrawals.

[Prairie Stash]

Crunched the numbers on the account. It's going to have $70,000 in it by years end, the MER should be 0.12% which will cost $84. It helps keep me from going too heavy in a single stock initially if I start with ETF's.

However, once it has a good chunk I can buy individual stocks and be slightly off balanced but not horribly (I don't care about having exact %'s, just ranges). For example if I buy $10k of RBC, I'll have far too much RBC, but not a significant amount compared to the entire portfolio. I'm leaning towards telecommunications and pipelines to get a better sector balance though, I hate how its so financial heavy.

Thank you both Mr. Rich Moose and Ben. Optimally I think a bit of both ideas is best.  My wife liked both ideas, mostly she liked that all the work was done and she can reap the rewards of her savings.