The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: supersonic2015 on January 15, 2019, 08:38:07 AM
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Hi Mustachians,
I've been doing a ton of reading to figure out the optimal ETF allocation between TFSA and RSP. A few things:
- I am familiar with withholding tax, but currently invest only in CAD$. I hold VUN in my RSP and thus, I understand the tax is not recoverable. Correct me if I'm wrong.
- I understand equities should be in the TFSA for optimal contribution room growth, and I have this. I have VAB in the RSP instead.
Questions:
1. Is there a better ETF than VUN for the RSP that would allow me to recover withholding tax? I am not interested in using US$ at this time because quite frankly, I'm just not that familiar with the process (will read more for future). I have not come across any ETFs that fit this description.
2. To allow for more diversification, which ETFs would you put in the TFSA versus the RSP? Given the withholding tax issue, I know it makes sense to put Canadian equities in the TFSA, but what else would you put there? I feel like putting everything to VCN isn't the greatest idea because the Canadian market is so small on the global scale.
Currently I have:
TFSA - VCN, VUN, XEF, XEC
RSP - VAB, VUN, VCN, XEF, XEC
I know there is too much overlap there. When I opened these accounts a year ago I didn't want to be paralyzed by inaction, so I figured, overlap is better than not investing at all. I'd like to redistribute these to make a little more sense with not so much overlap.
Any advice would be greatly appreciated. Thank you.
PS - My husband has an RSP as well, soon to be moved over to Questrade. If there are additional diversification strategies that can/should be used between spouses, I'm happy to read anything you send me.
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You seem quite well balanced (a bit of everything) so I see no issues,
At this point, I'd just keep the AA in sync, and you'd be fine. While there is loss of withholding taxes for TFSA, they are also the sort of ETFs that will continue to grow, and you want to shelter that growth. For RRSP, many countries have tax treaties, so there is no loss from US (for example) for the withholding.
You'd have to sell to redistribute, I'd personally just leave them as is, and simply continue to add the new money to the ones you want more of.
For example, keeping adding so that VCN is now 5% your full portfolio, bond 10%, VUN 50, XEF/XEC 35% - Not real AA recommendations, but to give you an idea that since you already have some of each already, might as well keep them and wait till you need to sell, instead of selling in advance.
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Thanks for the comment.
My intention was to contribute to the ETFs I want more of, rather than to sell the ones I "don't want". I think maybe I've just gone down the diversification rabbit hole too far and now think I've done something wrong :-)
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Meh, it's probably at the level of hmm I seem to have lost a penny. I'll try to not loose more.
-Does it matter?
-No, not really.
-Okay then.
I'd probably say that you only need one of the two emerging markets, but it doesn't matter enough to be worth changing. keep shoveling in the money!
And for the diversification, just make sure you take your portfolio + his in account when you are following your AA.
If you are 50% CAN 50% US, and he is 0% CAN and 100%, that brings you to 25% CAN 75% US!