Author Topic: Financial newbie (canadian edition)  (Read 18852 times)

fb132

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Financial newbie (canadian edition)
« on: May 15, 2015, 06:09:29 AM »
Currently, I have 25K$ in RRSP with RBC mutual funds and about 14K$ in the TFSA RBC mutual funds. Now I know, my mutual funds have high MER (2%), butI have 0 clue on how ETF works and when I read about them, I am confused, I don't even know where to start so that scares me from making the jump to the next level of investing.

Should I look for a financial advisor? What are my next steps. I even read the canadian couch potato site and they talk about vanguard, but I really don't understand how to start that model or what to look for. When I go to the vanguard canada website, it says shares can be bought through a broker or financial advisor. I am telling you, I am a terrible newbie when it comes to investments, I understand absolutely nothing, I basically need a baby type tutorial that explains me like a child how to do something when it comes to investments. So please fellow Mustachians, help me out on my next step to not only understand how it works, but what I should do. I have read different posts here on investments, but I still don't have a clue on what to do or where to start.

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Re: Financial newbie (canadian edition)
« Reply #1 on: May 15, 2015, 06:27:00 AM »
Don't get stressed fb132! i JUST went through this whole process - actually I have all my money transferred and sitting in my Questrade account and am buying today :)

My thread is here:http://forum.mrmoneymustache.com/investor-alley/canadian-first-time-setting-up-investment-plan-please-help!/ It is a great place to start!

My suggestions:
 - Read my thread, ask questions - our community is great!
 - Open a Questrade account (let me know if you want my referral code, they are offering some great cash bonuses)
 - Transfer accounts from RBC to Questrade. Questrade will cover these costs if your accounts are big enough, I think 25.000.
 - Complete a risk profile so you know how comfortable you are. Choose a CCP model portfolio that matches.
 - Buy!

If I can do it, with help from this community pretty sure you can too :) A lot of the recommendations about the expense of buying ETFS are moot if you go with a company like Questrade, free buys but a small ENC fee when you sell...don't get hung up on that, I did.

Have any questions? lots of people will be able to help.

morning owl

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Re: Financial newbie (canadian edition)
« Reply #2 on: May 15, 2015, 08:11:44 AM »
First of all, way to go on taking the interest in learning this for yourself. IMO it's one of the most important things we can all learn, and many are afraid to dip their toe in this water. It can be intimidating but you will get the hang of it! And it'll be worth it once you do.

Swicks advice above is good, but I just wanted to mention the reason for opening an account like quest trade. You don't have to go wih questtrade specifically, but what you need to do is open a self directed account with *someone* so you can do your own trades. This is how you will be able to buy and sell ETFs for yourself, and it's all done online.

The advantage to an online brokerage like questrade is, as swick said, they offer free buys of ETFs. All banks have their own direct trading brokerage... Your own bank has one as well. Trades there cost 9.95 (to buy or sell.) if you're more comfortable with your own bank, then you can also stay with them -- just know that they will charge a fee for every time you buy a chunk of ETFs. And you need to open this direct investing account so you can do your own trades online.

I have my RRSP and TFSA with TD direct, and have had no issues with them so far. I like having all my accounts in one places and like the TD online interface, so don't mind paying 10 bucks every month or so when I make a transaction.

Here is the link to rbc direct:
http://www.rbcdirectinvesting.com

Just so you can research for yourself and choose what's best for you. But the main idea here is that the first step is to open an online self directed account with a bank or online brokerage. Then you can be in control of all your own trades, and move on to the next step, which is learning about what to invest in.

Koogie

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Re: Financial newbie (canadian edition)
« Reply #3 on: May 15, 2015, 08:32:42 AM »
butI have 0 clue on how ETF works and when I read about them, I am confused, I don't even know where to start so that scares me from making the jump to the next level of investing.

Go to the library and get out the book  "Millionaire Teacher" by Andrew Hallam.  Well written, readable and approachable (especially if you are interested in ETFs and index investing).   The book is a personal finance primer.  I am a mid level sort of investor (knowledge wise) and have a Large portfolio.   This is the book I wish I had read about 10 years ago when starting out.


Should I look for a financial advisor?
      NO !!  Not yet anyway.  Increase your knowledge first and then decide if you need one.  FA are like used car salesmen.  1 in 10 is trustworthy and helpful.  Knowing enough to pick that 1 and to tell the other 9 to F-Off is an essential skill and will only come to you when you know more.  Otherwise you are a ripe chicken for the plucking.



fb132

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Re: Financial newbie (canadian edition)
« Reply #4 on: May 15, 2015, 09:00:16 AM »
So lets say I open with RBC Direct Investing and I listen to Canadian couch potato's advice on vanguard ETF.

If I read it correctly, it suggests that I put 40% in VAB (Vanguard Canadian Aggregate Bond Index) and 20% in VCN (Vanguard FTSE Canada All Cap Index ETF) and 20% in VXC (Vanguard FTSE All World Ex Canada Index)...in other words if I have 100$ to invest, 40$ would go to VAB, 20$ to VCN and 20$ to VXC, did I get that part,right??? And do I keep at it for a long time or does canadian couch potato change its model once in awhile?

Sorry if I ask way too many questions, I want to make sure I understand before heading into something big like investing.

Retire-Canada

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Re: Financial newbie (canadian edition)
« Reply #5 on: May 15, 2015, 09:06:31 AM »
Currently, I have 25K$ in RRSP with RBC mutual funds and about 14K$ in the TFSA RBC mutual funds. Now I know, my mutual funds have high MER (2%), butI have 0 clue on how ETF works and when I read about them, I am confused, I don't even know where to start so that scares me from making the jump to the next level of investing.

Should I look for a financial advisor? What are my next steps. I even read the canadian couch potato site and they talk about vanguard, but I really don't understand how to start that model or what to look for. When I go to the vanguard canada website, it says shares can be bought through a broker or financial advisor. I am telling you, I am a terrible newbie when it comes to investments, I understand absolutely nothing, I basically need a baby type tutorial that explains me like a child how to do something when it comes to investments. So please fellow Mustachians, help me out on my next step to not only understand how it works, but what I should do. I have read different posts here on investments, but I still don't have a clue on what to do or where to start.

Go back to CCP. Read the three options they suggest. ETFs via a broker are the most complex option. You don't have to go this route.

http://canadiancouchpotato.com/model-portfolios-2/

Tangerine and TD e-series funds are great options as well and are easier to use.

Investing is a complex subject and everyone learns at a different rate. Don't stress yourself out.

I'd suggest:

1. leave your existing investments where they are until you feel comfortable about moving them
2. put new money in one of the lower rate mutual fund options suggested by CCP
3. keep reading about investing and talking to people
4. as you learn and develop your investing skills put new money in vehicles that make sense to you
5. don't stress about money in a higher rate mutual fund until you feel comfortable moving it to a new investment vehicle
6. eventually once you're comfortable with your knowledge base you can move any money in sub-optimal investments to ones you think are better

This is a marathon not a race. The only way you'll lose is by not starting.

I would skip the financial advisor. They are leeches/vampires and not after your best interests.

Don't beat yourself up about how much you know now.

Don't worry about the fact that in 5yrs you will look back and think "I would have invested differently."

-- Vik
« Last Edit: May 15, 2015, 09:09:07 AM by Vikb »

Retire-Canada

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Re: Financial newbie (canadian edition)
« Reply #6 on: May 15, 2015, 09:17:18 AM »
So lets say I open with RBC Direct Investing and I listen to Canadian couch potato's advice on vanguard ETF.

If I read it correctly, it suggests that I put 40% in VAB (Vanguard Canadian Aggregate Bond Index) and 20% in VCN (Vanguard FTSE Canada All Cap Index ETF) and 20% in VXC (Vanguard FTSE All World Ex Canada Index)...in other words if I have 100$ to invest, 40$ would go to VAB, 20$ to VCN and 20$ to VXC, did I get that part,right??? And do I keep at it for a long time or does canadian couch potato change its model once in awhile?

Sorry if I ask way too many questions, I want to make sure I understand before heading into something big like investing.

The math is off $40 + $20 + $20 = $80. VXC should be $40.

However you buy shares of ETFs so you can't just put $20 in VAB as it's trading around $26/share.

You also don't have to split each input of money exactly along the recommended allocation.

If I am putting my monthly savings in ETF I tend to buy the one that is furtherest from my desired asset allocation. Next time I buy I put all my money into the one that is now furthest from my targets. This bumps my asset allocation in the correct direction. I don't stress about keeping everything perfect aligned with a CCP portfolio target.

So if it was me and I was starting from zero on that CCP model portfolio adding $100 a month I'd do this:

1. $100 to VAB
2. $100 to VXC
3. $100 to VCN
4. $100 to VAB
5. $100 to VXC [reached approx asset allocation of 40/20/40]
6. $100 to whichever ETF is furthest from targets.

-- Vik
« Last Edit: May 15, 2015, 09:20:36 AM by Vikb »

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Re: Financial newbie (canadian edition)
« Reply #7 on: May 15, 2015, 09:18:48 AM »
So lets say I open with RBC Direct Investing and I listen to Canadian couch potato's advice on vanguard ETF.

If I read it correctly, it suggests that I put 40% in VAB (Vanguard Canadian Aggregate Bond Index) and 20% in VCN (Vanguard FTSE Canada All Cap Index ETF) and 20% in VXC (Vanguard FTSE All World Ex Canada Index)...in other words if I have 100$ to invest, 40$ would go to VAB, 20$ to VCN and 20$ to VXC, did I get that part,right??? And do I keep at it for a long time or does canadian couch potato change its model once in awhile?

Sorry if I ask way too many questions, I want to make sure I understand before heading into something big like investing.

Yes, you are reading the 40/20/20 split correctly (oops).  No you aren't!  40/20/40 is correct.  The balanced model? 
Yes, CCP changes their models from time to time as new ETFs become available to the market.  Generally he moves his recommendations toward a more simplified and lower cost profile based on new ETFs.  But, not in a knee jerk way.  He also goes to length to suggest that you don't want to go changing your portfolio around at every new recommendation since you will erode gains through buy/sell.  I recommend simplicity. 

The problem with place like RBC, TD, BMO etc are that if you plan on making frequent deposits (i.e. frequent investment buys) after your original transfer of monies, the trade costs become exorbitant.  Thus, swick (and my) recommendations to go with Questrade IF you plan on buying with every paycheque you get.  This is what I do.  This is how I rebalance my portfolio - by buying the worst performing ETF to rebalance. 


« Last Edit: May 15, 2015, 09:21:15 AM by Ottawa »

morning owl

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Re: Financial newbie (canadian edition)
« Reply #8 on: May 15, 2015, 09:20:35 AM »
So lets say I open with RBC Direct Investing and I listen to Canadian couch potato's advice on vanguard ETF.

If I read it correctly, it suggests that I put 40% in VAB (Vanguard Canadian Aggregate Bond Index) and 20% in VCN (Vanguard FTSE Canada All Cap Index ETF) and 20% in VXC (Vanguard FTSE All World Ex Canada Index)...in other words if I have 100$ to invest, 40$ would go to VAB, 20$ to VCN and 20$ to VXC, did I get that part,right??? And do I keep at it for a long time or does canadian couch potato change its model once in awhile?

Sorry if I ask way too many questions, I want to make sure I understand before heading into something big like investing.

For sure, ask as many questions as you need to... You don't want to rush into anything. There's no rush. Many people keep their money in cash until they understand what they're buying. Never do anything you don't fully understand.

First of all, if you go with a bank brokerage like RBC investing, you don't wand to be making any buys at that level. I know you're using 100$ as an example, but just want to be clear that that is way too low an amount to be pirchasing, given that the fees would eat up 1/3 of that! You would pay $10 for the purchase of each fund, or $30 total. So you would need to wait until you have 1-2k per fund that you want to purchase, so that your fees don't eat up years of returns.

If you'd like to buy $100 worth of ETFs at a time, then questrade would be a better option.

Secondly, your question here is about rebalancing. The asset allocations CCP is suggesting are goals to start out with, and keep track of as time goes on. Typically (but not always) when equities (stocks) go down, bonds are more stable, or might go up. So if that happens, then your initial allocation will have changed. Let's say you start out with 20% bonds and 80% North American equities. If the equities drop in value, then your portfolio might be at 70% equities and 30% bonds. You can then choose to rebalance, or sell off some bonds to bring their weighting back to 20%, and buy some equities to bring that level back up to your 80% desired allocation. It's best to choose ahead of time how often you want to rebalance. Some do so quarterly, some annually. If you decide in a plan and stick to it, then it will prevent any sort of panic selling or buying, which is easy to do.

A good way to get a feel for all of this is to set up a test account, where you're not actually buying anything in real life, but just testing out how a theoretical portfolio would react to changes in the market. It looks like rbc offers such a service, as does questrade, no doubt.

Also second the reco for Millionaire Teacher, if you do get into index investing. Very easy to read and understand, and he explains all of the above (rebalancing) very clearly.

fb132

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Re: Financial newbie (canadian edition)
« Reply #9 on: May 15, 2015, 09:36:48 AM »
Yea I did a mistake there in my calculations,lol. I type way too fast and I don't always read what I am about to post :P

So far, Questrade will be my choice. Concerning Questrade, I won't be touching my RBC mutual funds right now, but can I start investing starting next week 1000$ or is there a minimum in order to open an accoutn with them. I wouldn't mind keeping for now my current investments with my bank, but I would like to start my investments with vanguard ETF starting from next week with each paycheck I get.

Also, should I stick with Balanced or Assertive...My mind says to go with Assertive, because I have been already investing in a mutual fund with 80/20 that is considered as growth. So am I right to go with the Assertive choice (25% on VAB, 25% on VCN and 50% on VXC)??? And when is it time to rebalance my funds or is it even necessary??? I am usually the type of person who just invest every paycheck without really worrying if my investments go up and down...I am way far from FIRE (a good 15-20 years minimum).
« Last Edit: May 15, 2015, 09:44:43 AM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #10 on: May 15, 2015, 09:54:40 AM »
Yea I did a mistake there in my calculations,lol. I type way too fast and I don't always read what I am about to post :P

So far, Questrade will be my choice. Concerning Questrade, I won't be touching my RBC mutual funds right now, but can I start investing starting next week 1000$ or is there a minimum in order to open an accoutn with them. I wouldn't mind keeping for now my current investments with my bank, but I would like to start my investments with vanguard ETF starting from next week with each paycheck I get.

Also, should I stick with Balanced or Assertive...My mind says to go with Assertive, because I have been already investing in a mutual fund with 80/20 that is considered as growth. So am I right to go with the Assertive choice (25% on VAB, 25% on VCN and 50% on VXC)??? And when is it time to rebalance my funds or is it even necessary??? I am usually the type of person who just invest every paycheck without really worrying if my investments go up and down...I am way far from FIRE (a good 15-20 years minimum).

Your own comfort level is the way to determine stock:bond ratio.  Since you suggest that you don't worry much and that FIRE is 15-20 the general consensus would be to have a high stock allocation.  I think the Assertive fits that bill. 

Regarding rebalance: I find that if you are putting cash in every fortnight (2 weeks) keep it simple by buying the worst performing of you VAB, VCN, VXC.  So, an example.  Say you have $25 VAB, $25 VCN and $50 VXC the instant you first invest.  2 weeks later lets say your portfolio is  $23VAB, $25VCN and $54VXC.  In this case, your VAB is the worst performing.  So, you take your shiny new dollar from paycheque and buy $1 of VAB.  This now ensures you always "BUY LOW" and provides the tendency to rebalance your portfolio...

fb132

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Re: Financial newbie (canadian edition)
« Reply #11 on: May 15, 2015, 10:05:03 AM »
so lets say I put in 25$ in VAB, 25$ on VCN and 50$ on VXC and I get the numbers you put out 2 weeks later, meaning the value is 23$ in VAB, 25$ in VCN and 54$ in VXC, I simply invest on my next paycheck 26$ in VAB, 25$ in VCN and 49$ in VXC? in order to make it a little even?

fb132

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Re: Financial newbie (canadian edition)
« Reply #12 on: May 15, 2015, 11:18:36 AM »
Ok, so I just created my Questrade account, I signed my documents with the e signature. What's next??? It says my account needs a photo valid id, do I just send them by mail a copy of my passport or driver's licence (I don't have a digital camera)? And then when I click My Ressource-> Getting Started and then click on "Start Trading" in the self directed box, it pops up a window saying "We’re sorry! You do not have permission for this application" .Is it because I didn't send my photo id yet? I am confused on what to do next.

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Re: Financial newbie (canadian edition)
« Reply #13 on: May 15, 2015, 11:43:09 AM »
Ok, so I just created my Questrade account, I signed my documents with the e signature. What's next??? It says my account needs a photo valid id, do I just send them by mail a copy of my passport or driver's licence (I don't have a digital camera)? And then when I click My Ressource-> Getting Started and then click on "Start Trading" in the self directed box, it pops up a window saying "We’re sorry! You do not have permission for this application" .Is it because I didn't send my photo id yet? I am confused on what to do next.

Yes, you could allocate more evenly across your ETFs when you add more money.

I found with Questrade that their online chat service was super helpful.  I would hit them on that to answer account opening specifics. 

fb132

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Re: Financial newbie (canadian edition)
« Reply #14 on: May 15, 2015, 11:51:03 AM »
Ok, so I just created my Questrade account, I signed my documents with the e signature. What's next??? It says my account needs a photo valid id, do I just send them by mail a copy of my passport or driver's licence (I don't have a digital camera)? And then when I click My Ressource-> Getting Started and then click on "Start Trading" in the self directed box, it pops up a window saying "We’re sorry! You do not have permission for this application" .Is it because I didn't send my photo id yet? I am confused on what to do next.

Yes, you could allocate more evenly across your ETFs when you add more money.

I found with Questrade that their online chat service was super helpful.  I would hit them on that to answer account opening specifics.
I spoke to a rep, she was helpfull. I have to always keep a minimum of 1000$ in the questtrade account, I guess, I will start mailing my photo ID now and hopefully in a week or 2 I can set it up. So to recap it all, once my Questrade account is running up fine, I will be putting like stated 25% in VAB, 25% in VCN and 50% in VXC. I will most probably put 600-700$ per month.

1 last question, should I buy those stocks weekly (Dollar cost average) even though I will have the 600-700$ for that month or should I just say "fuck that, put it all now and invest the following month another 600-700$ and the following another 600-700$, etc, etc....?

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Re: Financial newbie (canadian edition)
« Reply #15 on: May 15, 2015, 12:01:59 PM »

1 last question, should I buy those stocks weekly (Dollar cost average) even though I will have the 600-700$ for that month or should I just say "fuck that, put it all now and invest the following month another 600-700$ and the following another 600-700$, etc, etc....?

No market timing allowed.  Each time you have a lump of cash; buy your ETFs!  So, yes.  Fuck that. :-) 
It also takes stress and potentially bad decision making out of the equation.

fb132

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Re: Financial newbie (canadian edition)
« Reply #16 on: May 15, 2015, 12:15:57 PM »
Thank you guys, this was really helpfull. In the past, even though I was happy with my rate of return with my mutual funds, the fact I was paying 2% MER didn't sit well with me because it means in the long run I could of been making even more money if it wasn't for the fee. I am only 33, but at least now I know where I am heading and I have learned alot just on this thread alone and I got even the courage to create my own account with Questrade which was daunting for me since at first it felt like I was heading towards the uknown, so thank you alot everyone for helping me and learning about investing. I do not claim I know everything now, but at least I know I am heading in the right direction. Considering most people I know are broke, I am happy to see that I did not follow their path through consumerism and I am glad this website exist (a big thank you to Pete MMM himself for starting all this and opening our eyes) or else I would still be that fool who would spend all his paycheck on "stuff".
« Last Edit: May 15, 2015, 12:18:33 PM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #17 on: May 15, 2015, 10:35:32 PM »
I have another question, I just read that VXC shouldn't be held in the TFSA as I would pay for two levels of foreign witholding taxes? Should I still keep it in the TFSA and just follow the canadian couch potato or am I better off replacing it??? Anyone care to share their portfolio suggestions for the tfsa?

I was reading http://canadiancouchpotato.com/2010/03/05/put-your-assets-in-their-place/ , is it a good idea simply to invest in iShares S&P/TSX Capped REIT (XRE) like it suggests? Should I add some bonds into it (with VBA for example)
« Last Edit: May 15, 2015, 11:06:36 PM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #18 on: May 16, 2015, 01:15:53 AM »
That's just an example of how to allocate with an existing portfolio that includes taxable accounts. 


I strongly suggest you find yourself a copy of Dans Guide to the Perfect Portfolio. And read it twice.

http://canadiancouchpotato.com/resources/

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Re: Financial newbie (canadian edition)
« Reply #19 on: May 16, 2015, 05:29:18 AM »
Generally growth stocks should be held in your TFSA. You'll get charged withholding tax on US stocks (whereas you won't in your rrsp) so cdn is generally better kept there. This is because all that growth will happen tax free, vs. in your rrsp where you will eventually have to pay tax on it.

Keep bonds in your rrsp for the flip side of this reason -- slow growth. Bonds should also never be in a taxable act because interest is taxed less favourably than dividends or capital gains.

Some people go for the growth over concerns about withholding taxes. I.e. It would have been better to have all your US stocks in your TFSA, pay the withholding tax, but have seen major growth over the past 7 years, vs. holding them in your rrsp over that time and paying tax on the growth on retirement. Personally I hold foreign ETFs in my TFSA for this reason.
« Last Edit: May 16, 2015, 05:32:19 AM by morning owl »

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Re: Financial newbie (canadian edition)
« Reply #20 on: May 16, 2015, 05:56:44 AM »
I have another question, I just read that VXC shouldn't be held in the TFSA as I would pay for two levels of foreign witholding taxes? Should I still keep it in the TFSA and just follow the canadian couch potato or am I better off replacing it??? Anyone care to share their portfolio suggestions for the tfsa?

I was reading http://canadiancouchpotato.com/2010/03/05/put-your-assets-in-their-place/ , is it a good idea simply to invest in iShares S&P/TSX Capped REIT (XRE) like it suggests? Should I add some bonds into it (with VBA for example)

With VXC you will pay 2 levels of withholding tax. This is because VXC is composed of etfs within an etf. Instead I would recommend a combination of VUN (US broad base index) and XEF (Ishares International) You will have lower costs and pay less withholding tax on dividends. XEF holds the international stocks directory compared to VXC which holds foreign stocks indirectly through other funds. The withholding tax is only on the dividend not on capital gains. With VUN it works out to about an extra .15% mer equivalent. Not enough to worry about whether its should be in a tfsa vs. rrsp. Just focus on keeping initial costs low and your allocation

My allocation is: 40% VAB, 20% XEF, 20% VUN, 20% VCN. I keep track of my total allocation across TFSA, RRSP, LIRA, RESP through a simple spreadsheet. I ignore the market and simply re-balance every 6 months, automatically buying low and selling high. You can re-balance by buying and selling or by adding money to lagging categories or a combination of both.

Here is an article on withholding taxes on international ETF's
http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/
« Last Edit: May 16, 2015, 09:21:15 PM by thriftycanadian »

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Re: Financial newbie (canadian edition)
« Reply #21 on: May 16, 2015, 07:50:31 AM »
Maybe I am wrong, but I have a feeling I am better off simply investing 100% in canadian market in the TFSA, I was reading this post http://forum.mrmoneymustache.com/investor-alley/couchpotato-investing-and-dividends/msg631986/#msg631986

One person suggested in that post to put in the TFSA 20% in VAB, 25% in ZCN (BMO S&P/TSX Capped Composite Index ETF) which would be perfect because it is money that can be used at anytime if I ever need it (for example buying a new home or a real emergency where the roof collapses, the wall collapses and loss of job) while putting in my RRSP (long term so higher risk) 10% in VAB, 20% in XEF and 25% in XUS....Another suggestion was made from that link to put only VCN in the TFSA and VAB, XEF and XUS in the RRSP.

I think that would cover everything,right?
« Last Edit: May 16, 2015, 10:14:45 AM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #22 on: May 16, 2015, 12:39:01 PM »
Thanks very much fb132 for starting this thread, and thanks to all our fellow mustachians for their great advice.  I find myself in the very same position and really had no idea how to start investing from a Canadian perspective - this has been so helpful!

Kudos to this community!

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Re: Financial newbie (canadian edition)
« Reply #23 on: May 16, 2015, 12:59:26 PM »
Maybe I am wrong, but I have a feeling I am better off simply investing 100% in canadian market in the TFSA, I was reading this post http://forum.mrmoneymustache.com/investor-alley/couchpotato-investing-and-dividends/msg631986/#msg631986

One person suggested in that post to put in the TFSA 20% in VAB, 25% in ZCN (BMO S&P/TSX Capped Composite Index ETF) which would be perfect because it is money that can be used at anytime if I ever need it (for example buying a new home or a real emergency where the roof collapses, the wall collapses and loss of job) while putting in my RRSP (long term so higher risk) 10% in VAB, 20% in XEF and 25% in XUS....Another suggestion was made from that link to put only VCN in the TFSA and VAB, XEF and XUS in the RRSP.

I think that would cover everything,right?

That might be ideal, unless you get to a point like me where you max out rrsp's and TFSA's every year. Therefore my wife and I have VAB, XEF and VUN spread across RRSP's, LIRA and TFSA's. We have VCN (Canadian Index) in a non registered account. In my case, I treat everything as retirement accounts as I do not plan on withdrawing from TFSA's or RRSP's until I retire. If done properly, TFSA's can be a powerful tool to lower your tax burden in retirement. Since we will be withdrawing from both my wife and my accounts equally, the plan is to pay no or little tax in retirement!

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Re: Financial newbie (canadian edition)
« Reply #24 on: May 16, 2015, 01:02:20 PM »
Maybe I am wrong, but I have a feeling I am better off simply investing 100% in canadian market in the TFSA, I was reading this post http://forum.mrmoneymustache.com/investor-alley/couchpotato-investing-and-dividends/msg631986/#msg631986

One person suggested in that post to put in the TFSA 20% in VAB, 25% in ZCN (BMO S&P/TSX Capped Composite Index ETF) which would be perfect because it is money that can be used at anytime if I ever need it (for example buying a new home or a real emergency where the roof collapses, the wall collapses and loss of job) while putting in my RRSP (long term so higher risk) 10% in VAB, 20% in XEF and 25% in XUS....Another suggestion was made from that link to put only VCN in the TFSA and VAB, XEF and XUS in the RRSP.

I think that would cover everything,right?

That might be ideal, unless you get to a point like me where you max out rrsp's and TFSA's every year. Therefore my wife and I have VAB, XEF and VUN spread across RRSP's, LIRA and TFSA's. We have VCN (Canadian Index) in a non registered account. In my case, I treat everything as retirement accounts as I do not plan on withdrawing from TFSA's or RRSP's until I retire. If done properly, TFSA's can be a powerful tool to lower your tax burden in retirement. Since we will be withdrawing from both my wife and my accounts equally, the plan is to pay no or little tax in retirement!

So what ETF's did you put exactly in the RRSP and TFSA, I am curious, I like getting all sorts of idea's and then making up my mind, that is how I learn. You say you have VAB, XEF and VUN spread accross, but what are the percentage you put in the TFSA for example.

Btw, good job on maxing out both RRSP and TFSA...I could only aspire doing that, but my income isnt high enough for me to max both especially since the goverment boosted the TFSA contribution from 5500$ a year to 10000$. I am not complaining though, it only means there will always be room for me to invest tax free :) .
« Last Edit: May 16, 2015, 01:05:37 PM by fb132 »

thriftyc

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Re: Financial newbie (canadian edition)
« Reply #25 on: May 16, 2015, 02:54:26 PM »
I have all VAB,XEF and VUN in the TFSA and RRSP in various percentages. I am not to hung up on this because when using vun and xef separate, the withholding tax equals only equivalent to a .15% mer additional cost in the TFSA.  Instead what I focus on is getting my initial costs down as much as possible. My allocation of 40,20,20,20 is across all accounts combined - and I focus on maintaining the allocation above all else and to do that properly, I have no choice to hold some VUN in my TFSA.  My only rule is that I use my unregistered account for VCN - everything else is a mixed bag and is fluid based on what is happening overall to the growth of my account.
« Last Edit: May 16, 2015, 02:58:41 PM by thriftycanadian »

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Re: Financial newbie (canadian edition)
« Reply #26 on: May 16, 2015, 05:54:07 PM »
Mine is more complicated than I'd like.  Mostly it is because I've been investing in ETF's for a while (i.e. vanguard wasn't in Canada yet) and as you pointed out earlier on...more simple methods of investing have become available.  So, for instance, I still have VXUS.  But, I now buy XEC/XEF. 

Proportions as follows:

VUN = 40%
VCN = 10%
ZEF = 17.5%
XEC = 7.5%
CHB = 5%
ZRE = 5%
VSC = 10%
ZPR = 5%

Also, bear in mind that simple is good when your portfolio is not overly large.  But, as thrifty canadian suggests, once you have a larger portfolio and multiple TFSA/RRSP maxed out...you have to then put things in the non-registered.  Since we are federal gov't workers, our RRSP limits are very small.  Thus the non-registered is proportionally much larger and makes the tax planning a bit awkward. 

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Re: Financial newbie (canadian edition)
« Reply #27 on: May 16, 2015, 07:22:18 PM »
Thank you thriftycanadian, I will use your suggestion for my TFSA investment and do what you do except with changes in percentage: 30% VAB, 25% XEF, 25% VUN, 20% VCN 

Not only the witholding taxes will be low, but it covers basically all the major markets if I am not mistaken.

Maybe its a stupid question what I am going to ask, but since there are witholding taxes on the XEF and VUN, is the tax paid during purchase of the stock or does that need to involve the accountant (like having to fill out some forms) during income tax time? I just want my investments to be hassle free.
« Last Edit: May 16, 2015, 07:49:58 PM by fb132 »

thriftyc

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Re: Financial newbie (canadian edition)
« Reply #28 on: May 16, 2015, 09:05:53 PM »
Thank you thriftycanadian, I will use your suggestion for my TFSA investment and do what you do except with changes in percentage: 30% VAB, 25% XEF, 25% VUN, 20% VCN 

Not only the witholding taxes will be low, but it covers basically all the major markets if I am not mistaken.

Maybe its a stupid question what I am going to ask, but since there are witholding taxes on the XEF and VUN, is the tax paid during purchase of the stock or does that need to involve the accountant (like having to fill out some forms) during income tax time? I just want my investments to be hassle free.

Should be automatic, no accountant needed as the broker pays it to the IRS directly before you even notice it. However double check with your financial institution that VUN is at the correct amount withholding tax. I believe it can be higher than necessary if the broker does not set it up correctly. Good plan on the 30% VAB at this point, I am at 40% only because I am close to FIRE and wanted to reduce stocks a bit more in favour of bonds.

In terms of major market coverage, yes the above etfs do - thousands of stocks spread around the world in real companies. BTW-XEF pays a nice dividend. You could also get into emerging markets through XEC, I chose to stay out of that as there are countries in that ETF have corrupt governments and I would not feel safe drinking water out of the tap if I traveled there. If I can't drink the tap water, I don't invest! - own rule of thumb. However, many investors see value in emerging markets
« Last Edit: May 17, 2015, 02:14:57 PM by thriftycanadian »

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Re: Financial newbie (canadian edition)
« Reply #29 on: May 16, 2015, 09:08:59 PM »
Infact I am using Questrade so I have no clue if it does automatically or not.

thriftyc

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Re: Financial newbie (canadian edition)
« Reply #30 on: May 16, 2015, 09:17:05 PM »
Infact I am using Questrade so I have no clue if it does automatically or not.

All would be automatic, just ask them how much. You want 15% taken off, not 30%

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Re: Financial newbie (canadian edition)
« Reply #31 on: May 17, 2015, 01:18:44 AM »
BMO has a W8-BEN form that had to be submitted with photo ID to claim the reduction in US taxes.

http://www.bmo.com/self-directed/forms/personal-accounts

I'd expect Questtrade should have the same. 

thriftyc

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Re: Financial newbie (canadian edition)
« Reply #32 on: May 17, 2015, 06:16:28 AM »
BMO has a W8-BEN form that had to be submitted with photo ID to claim the reduction in US taxes.

http://www.bmo.com/self-directed/forms/personal-accounts

I'd expect Questtrade should have the same.

Good point, did not know the name of the form. TDW submitted it for me when I opened my account with them. Having that form submitted is difference of getting only 15% withholding tax on dividends vs. 30%.

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Re: Financial newbie (canadian edition)
« Reply #33 on: May 17, 2015, 06:42:28 AM »
BMO has a W8-BEN form that had to be submitted with photo ID to claim the reduction in US taxes.

http://www.bmo.com/self-directed/forms/personal-accounts

I'd expect Questtrade should have the same.
Does that form apply to an ETF like VXC, or it only applies to an ETF like VUS which is all US.

That's the only part I am confused, I know for certain VAB and VCN belong in the TFSA (in other words, I do not worry about having to sign any forms, the hassle factor is very very low), but should I add those out of country stocks like VXC, VUS or XEF in the TFSA without hassle or should I simply stick with VAB and VCN in the TFSA, and once I maximize my TFSA, I add VXC (or VUS and XEF) along with the other 2 in the RRSP.

I was reading this article I found in which he says the writer simply puts all his money on VAB and VCN in the TFSA and follows the Vanguard model portfolio for the RRSP (meaning he invests in VAB, VCN and VXC for the RRSP). http://www.moneyaftergraduation.com/2015/01/26/easy-index-fund-investing/

Would that be wiser for my situation? And should I contribute to the RRSP and TFSA at the sametime or am I better off maximizing my TFSA first (since I am in the lower tax bracket) and then maximize my RRSP once the TFSA is full?

I know I ask alot of question, but I need to know for sure where to put my money and I want it to be hassle free, forms-free, I dont want to deal with all kinds of issues that I didn't think of.
« Last Edit: May 17, 2015, 07:16:55 AM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #34 on: May 17, 2015, 08:43:56 AM »

Would that be wiser for my situation? And should I contribute to the RRSP and TFSA at the sametime or am I better off maximizing my TFSA first (since I am in the lower tax bracket) and then maximize my RRSP once the TFSA is full?

If you are going to max both in each year it doesn't matter. If you aren't sure fill your TFSA up first then your RRSP.

If you are in a low tax bracket now figure out what your expected retirement income will be and look at the pros/cons of using the RRSP vs. a non-reg account once you filled up your TFSA. Every dollar out of a RRSP is taxed as income. You'll pay taxes now on dollars invested in a non-reg account, but you'll only pay taxes on dividends and capital gains down the road in a non-reg account which both have better tax rates. You can also use losses to offset capital gains. RRSP is great when you are making $150K/yr working and $45K/yr in retirement. As the income spread shrinks or becomes negative it's a less compelling investment option.

-- Vik
« Last Edit: May 17, 2015, 08:52:26 AM by Vikb »

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Re: Financial newbie (canadian edition)
« Reply #35 on: May 17, 2015, 08:51:54 AM »

Would that be wiser for my situation? And should I contribute to the RRSP and TFSA at the sametime or am I better off maximizing my TFSA first (since I am in the lower tax bracket) and then maximize my RRSP once the TFSA is full?

If you are going to max both in each year it doesn't matter. If you aren't sure fill your TFSA up first then your RRSP.

If you are in a low tax bracket now figure out what your expected retirement income will be and look at the pros/cons of using the RRSP vs. a non-reg account once you filled up your TFSA.

-- Vik

Ok, so I am going to maximize my TFSA for now, I am inclined to use the CCP or Thriftycanadian's ETF's for my TFSA, I will be putting VAB, VCN and VXC (or XEF and VUN) in my TFSA, sure I will have taxes that will be witheld, but it doesn't matter as long as in the end I make money for FI and I am sure it would still be cheaper than my current mutual funds that have a MER of 2,06%. Am I right?

Once my TFSA are maxed (If I ever do get there), I will use the same strategy for the RRSP.

To Vik: I make under 40000$, so the RRSP for now is not an option and it will be years before I even reach 40000$. I have managed to save up 25K$ in the RRSP for the HBP, but for now it is not worth investing in the RRSP with all that free room I have in the TFSA.
« Last Edit: May 17, 2015, 09:05:24 AM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #36 on: May 17, 2015, 01:22:43 PM »
This is super helpful to me as I am in the same boat! And the other thread swick posted a link to as well. Lots of reading to do. Started reading The Perfect Portfolio this morning.

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Re: Financial newbie (canadian edition)
« Reply #37 on: May 17, 2015, 01:38:33 PM »
That's why I opened up this thread, it forced me not only to learn about investing, but it forced me to also go out and read old posts and share stuff I also read online. I have always wanted to invest on my own instead of using the bank's mutual fund and I figured that at my age (33), it is now or never to learn and I am glad you got to learn as much I did.

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Re: Financial newbie (canadian edition)
« Reply #38 on: May 17, 2015, 02:10:33 PM »
That's why I opened up this thread, it forced me not only to learn about investing, but it forced me to also go out and read old posts and share stuff I also read online. I have always wanted to invest on my own instead of using the bank's mutual fund and I figured that at my age (33), it is now or never to learn and I am glad you got to learn as much I did.

Its great to invest on your own. By lowering your mer's you can literally retire a decade or more sooner from that alone! I fired my adviser over 10 years ago-one of the best choices I ever made in my entire life! I think someone else mentioned this, but I would strongly recommend the book "Millionaire Teacher" by Andrew Hallam.

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Re: Financial newbie (canadian edition)
« Reply #39 on: May 17, 2015, 02:13:09 PM »
I have a question regarding Questrade, I just made my first transfer from my bank account to Questrade (TFSA account). The cash that will be in my questrade account, is it regarded as cash inside a TFSA or will it be only in the TFSA once I buy stocks?

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Re: Financial newbie (canadian edition)
« Reply #40 on: May 17, 2015, 02:19:58 PM »
I have a question regarding Questrade, I just made my first transfer from my bank account to Questrade (TFSA account). The cash that will be in my questrade account, is it regarded as cash inside a TFSA or will it be only in the TFSA once I buy stocks?

If you made the payment to the actual TFSA account, it will sit as cash within the TFSA until you buy securities.

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Re: Financial newbie (canadian edition)
« Reply #41 on: May 17, 2015, 02:32:43 PM »
ok, so basically it is like I just contributed to my TFSA even though it is only cash. Lets say this year, I put in 30 000$ in my TFSA and I get a return from dividends of 1000$, is that 1000$ considered an addition to my contribution to the TFSA, meaning that in reality I have put in 31000$ in my TFSA according to CRA?

thriftyc

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Re: Financial newbie (canadian edition)
« Reply #42 on: May 17, 2015, 02:44:49 PM »
ok, so basically it is like I just contributed to my TFSA even though it is only cash. Lets say this year, I put in 30 000$ in my TFSA and I get a return from dividends of 1000$, is that 1000$ considered an addition to my contribution to the TFSA, meaning that in reality I have put in 31000$ in my TFSA according to CRA?

All investment gains whether from interest, dividends or capital gains do not take away from your contribution room and continue to compound tax free within the TFSA

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Re: Financial newbie (canadian edition)
« Reply #43 on: May 17, 2015, 03:02:32 PM »
Thank you very much thriftycanadian, you have been very helpfull, now all there is for me to do is wait for my questrade to confirm my ID, wait for my funds to arrive into the account and then start trading :) 

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Re: Financial newbie (canadian edition)
« Reply #44 on: May 20, 2015, 09:56:25 PM »
Has anyone else noticed you can't DRIP Vanguard ETFs at RBC direct investing?


thriftyc

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Re: Financial newbie (canadian edition)
« Reply #45 on: May 20, 2015, 10:04:49 PM »
Has anyone else noticed you can't DRIP Vanguard ETFs at RBC direct investing?

No? I can drip them at TDW.

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Re: Financial newbie (canadian edition)
« Reply #46 on: May 21, 2015, 05:11:19 AM »
Ugh don't buy VUN in your TFSA, buy VTI in your RRSP, if possible.

Questrade automatically does the W-8BEN stuff, you don't actually need to fill in a form with them.

I'm not a fan of VXC either.

XEF and XEA go better in a TFSA than VUN, IMHO.

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Re: Financial newbie (canadian edition)
« Reply #47 on: May 21, 2015, 05:20:59 AM »
Ugh don't buy VUN in your TFSA, buy VTI in your RRSP, if possible.

Questrade automatically does the W-8BEN stuff, you don't actually need to fill in a form with them.

I'm not a fan of VXC either.

XEF and XEA go better in a TFSA than VUN, IMHO.
I think you meant ZEA,right??? And why do you believe that is a better choice?
« Last Edit: May 21, 2015, 05:33:31 AM by fb132 »

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Re: Financial newbie (canadian edition)
« Reply #48 on: May 21, 2015, 09:50:22 AM »
Ugh don't buy VUN in your TFSA, buy VTI in your RRSP, if possible.

Questrade automatically does the W-8BEN stuff, you don't actually need to fill in a form with them.

I'm not a fan of VXC either.

XEF and XEA go better in a TFSA than VUN, IMHO.

ZEA yes sorry.

ZEA and XEF hold stocks directly. Lots of developed countries that are held inside impose no withholding. If you hold a US-domiciled fund that holds these stocks then you will pay US withholding tax of 15%.

With VUN, you always pay US withholding. In a TFSA any US (or other) foreign tax imposed is gone, it's non recoverable. In an RRSP, there is no US withholding, and probably little other withholding from foreign countries that have a sensible double taxation agreement with Canada. BUT if you hold a US domiciled fund in an RRSP that then holds foreign stuff... you may still lose some withholding as the *primary* country doesn't KNOW it's a retirement account.

Basically there are multiple levels of withholding based on your residency, the ETF you bought's domicile, and the domicile of any funds, stocks or ETFs that the ETF holds.

Short answer: reduce the 'depth' of holdings. ZEA and XEF now hold stocks directly. Good! VUN basically holds VTI, NOT the stocks directly. It's FAR FAR FAR from terrible but it is sub-optimal when there are better options (Norbert's Gambit to USD and buy VTI inside an RRSP - ok, don't do it for small amounts, but when you have a chunk of a few thousand dollars in VUN, switch it).
I think you meant ZEA,right??? And why do you believe that is a better choice?

fb132

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Re: Financial newbie (canadian edition)
« Reply #49 on: May 21, 2015, 09:55:02 AM »
Ugh don't buy VUN in your TFSA, buy VTI in your RRSP, if possible.

Questrade automatically does the W-8BEN stuff, you don't actually need to fill in a form with them.

I'm not a fan of VXC either.

XEF and XEA go better in a TFSA than VUN, IMHO.

ZEA yes sorry.

ZEA and XEF hold stocks directly. Lots of developed countries that are held inside impose no withholding. If you hold a US-domiciled fund that holds these stocks then you will pay US withholding tax of 15%.

With VUN, you always pay US withholding. In a TFSA any US (or other) foreign tax imposed is gone, it's non recoverable. In an RRSP, there is no US withholding, and probably little other withholding from foreign countries that have a sensible double taxation agreement with Canada. BUT if you hold a US domiciled fund in an RRSP that then holds foreign stuff... you may still lose some withholding as the *primary* country doesn't KNOW it's a retirement account.

Basically there are multiple levels of withholding based on your residency, the ETF you bought's domicile, and the domicile of any funds, stocks or ETFs that the ETF holds.

Short answer: reduce the 'depth' of holdings. ZEA and XEF now hold stocks directly. Good! VUN basically holds VTI, NOT the stocks directly. It's FAR FAR FAR from terrible but it is sub-optimal when there are better options (Norbert's Gambit to USD and buy VTI inside an RRSP - ok, don't do it for small amounts, but when you have a chunk of a few thousand dollars in VUN, switch it).
I think you meant ZEA,right??? And why do you believe that is a better choice?
You may be right, but onn the other hand, I read this article in which I agree with http://canadiancouchpotato.com/2015/01/30/the-wrong-way-to-think-about-withholding-taxes/ in a sense that I shouldn't go haywire simply because one pays a foreign tax.
« Last Edit: May 21, 2015, 10:17:36 AM by fb132 »