Author Topic: Rebalancing TFSA and RRSP help please  (Read 756 times)

themashedup1

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Rebalancing TFSA and RRSP help please
« on: January 01, 2022, 05:41:24 PM »
Hey all,

Been a hot minute since I have been on here. The Wheel of Time turns, and Ages come and pass...  Life has made a few choices for me.

I have been a bit haphazard in my investments, doing the "oh shinny" with some purchase, which has lead me to be (I think) over exposed to some markets.  Adding to this, I have just started funding my TFSA, so I am now splitting my investments between RRSP and TFSA and need to figure out how to balance that, with only holding Canadian etfs.


RRSP (88% of my portfolio)
VAB 10% Bonds
XUU 24%  S&P US TOTAL MKT
VE 21% Developed Europe
XEF 19% Euro Australia
VEE 12% Emerging Markets
VCN 14% Canadian Overall


TFSA:(12% of my portfolio)
VRE 49% CDN CAPPED REIT
XIC 51% S&P/TSX COMPOSITE


Looking at this right now there are a few things I think I need to change:
1) Sell VE or XEF, I am leaning towards VE because the lack of Aus?
2) Sell VCN in RRSP, and represent that in TFSA with XIC?  (should I keep VCN?)



At one point I had a (semi) plan with this, but that has long since been lost with the turning of the wheel. Any ideas that you see coming out of this that could help?


Freedomin5

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Re: Rebalancing TFSA and RRSP help please
« Reply #1 on: January 01, 2022, 06:34:46 PM »
What is your target AA according to your IPS? Before anyone can give you any advice, it helps to know the end goal.

themashedup1

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Re: Rebalancing TFSA and RRSP help please
« Reply #2 on: January 01, 2022, 07:13:26 PM »
Initially I was going to follow the general guide from Canadian Couch potato, but as I said, I got side tracked. Also now that I am using TFSA, I feel that using that will over expose me to the Canadian markets.

Bonds: ~10
Canadian: ~30
US: ~30
International: ~30

BNgarden

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Re: Rebalancing TFSA and RRSP help please
« Reply #3 on: January 01, 2022, 07:40:20 PM »
... Also now that I am using TFSA, I feel that using that will over expose me to the Canadian markets.
...

Sorry, can't understand the question: why do you feel the TFSA specifically (or Couch Potato?) will over expose you to Canadian?

Do you have an ISP, as per above question?  Cause you don't have to replicate allocations in each 'bucket' (TFSA and RSP), nor do you have to follow any particular guidance, even if from Cdn Couch Potato.  You get to decide.  Are you asking what is most tax advantageous, now or over time (withdrawal strategy)?

themashedup1

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Re: Rebalancing TFSA and RRSP help please
« Reply #4 on: January 01, 2022, 07:47:09 PM »
Maybe I am not understanding what can be put into the TFSA. I was understanding that only Canadian /stocks/ ETFS can be in there. So having REITs and TSX would make that over represented of the Canadian market within my whole investments.

BNgarden

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Re: Rebalancing TFSA and RRSP help please
« Reply #5 on: January 01, 2022, 08:09:58 PM »
Mr. Google says:
What investments can be held in a TFSA?
In general, the types of investments that can be placed in a TFSA are the same as those that can be held in an RRSP.
...
TFSA Investment Rules
Cash.
Guaranteed Income Certificates (GICs)
Government and corporate bonds.
Stocks.
Mutual Funds.
Exchage-traded funds (ETFs)

And, at: https://www.taxtips.ca/rrsp/rrspforeigncontent.htm
RRSP/RRIF Foreign Content Limit Eliminated
The February 23, 2005 budget eliminated the foreign content limit completely for RRSPs and RRIFs, for 2005 and later years.  If desired, RRSPs can now consist of 100% foreign content.

FIRE Artist

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Re: Rebalancing TFSA and RRSP help please
« Reply #6 on: January 02, 2022, 08:00:27 AM »
Sell everything and purchase one of the vanguard all in one self balancing funds in both your RRSP and TFSA.

Retire-Canada

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Re: Rebalancing TFSA and RRSP help please
« Reply #7 on: January 02, 2022, 08:47:02 AM »
Maybe I am not understanding what can be put into the TFSA. I was understanding that only Canadian /stocks/ ETFS can be in there. So having REITs and TSX would make that over represented of the Canadian market within my whole investments.

There is no Canadian content restriction on a TFSA.

Retire-Canada

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Re: Rebalancing TFSA and RRSP help please
« Reply #8 on: January 02, 2022, 08:47:32 AM »
Sell everything and purchase one of the vanguard all in one self balancing funds in both your RRSP and TFSA.

Yes. Probably a good idea.

Blender Bender

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Re: Rebalancing TFSA and RRSP help please
« Reply #9 on: January 02, 2022, 08:59:27 AM »
https://www.canadianportfoliomanagerblog.com/part-i-foreign-withholding-taxes-for-equity-etfs/
https://www.canadianportfoliomanagerblog.com/part-ii-foreign-withholding-taxes-for-global-equity-global-bond-and-asset-allocation-etfs/

Ignoring AA, my rules of thumb:

1. RRSP - do 100% US EFT/stock.
US considers RRSP as registered account. It gives back (some) foreign withholding tax FWT (for dividends).
CA founds also would be good here too, but I believe that US has a stronger returns than CA in general.

2. TFSA - here anything can come, but prefer something that has a chance a bigger capital gains (no bonds etc!).
CA - no taxes.
US - no good tax treatment on dividends since US does not treat TFSA as registered account.
International - a good place for it since there is no way to avoid FWT in general, so let it be in TFSA.
Note that no capital gains taxes in TFSA.
« Last Edit: January 02, 2022, 09:07:06 AM by ArnoldK »

Blender Bender

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Re: Rebalancing TFSA and RRSP help please
« Reply #10 on: January 02, 2022, 09:16:54 AM »
Sell everything and purchase one of the vanguard all in one self balancing funds in both your RRSP and TFSA.

Yes. Probably a good idea.

Having fully baked one stop portfolio has one distinct disadvantage. You cannot sell specific Asset Class e.g. bonds when stock goes down. As i see it it beats the purpose of AA ie ability of selling stuff that did not go down, and keeping the class that has been (over)punished.

Lews Therin

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Re: Rebalancing TFSA and RRSP help please
« Reply #11 on: January 02, 2022, 10:09:46 AM »
Thirding the sell everything and simplify.

Also, both tfda and rrsp can hold any investment you have, and can be sold for no tax effect

FIRE Artist

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Re: Rebalancing TFSA and RRSP help please
« Reply #12 on: January 02, 2022, 10:18:06 AM »
Sell everything and purchase one of the vanguard all in one self balancing funds in both your RRSP and TFSA.

Yes. Probably a good idea.

Having fully baked one stop portfolio has one distinct disadvantage. You cannot sell specific Asset Class e.g. bonds when stock goes down. As i see it it beats the purpose of AA ie ability of selling stuff that did not go down, and keeping the class that has been (over)punished.

?  This is literally EXACTLY what they do for you automatically. 

The OP has a portfolio that is over complex, they lack the discipline to stick with an asset allocation, they havenít articulated in any way why they have purchased what they have, they admit to not looking at it regularly, and donít understand the basic mechanics of a TFSA.  A simple all in on self balancing portfolio is exactly what they need.  It is actually what the majority of the population needs, which is why that is what Canadian Couch Potato has now switched to advising. 

I have a three fund portfolio put together before Vanguard introduced these all in one funds.  If I could have started this way I would have, it is what I recommend to everyone who has investments in registered accounts only.  I only recommend a multi fund portfolio if you have significant assets in taxable accounts and understand how to manage tax implications. 

Retire-Canada

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Re: Rebalancing TFSA and RRSP help please
« Reply #13 on: January 02, 2022, 10:23:27 AM »
Having fully baked one stop portfolio has one distinct disadvantage. You cannot sell specific Asset Class e.g. bonds when stock goes down. As i see it it beats the purpose of AA ie ability of selling stuff that did not go down, and keeping the class that has been (over)punished.

"You" can't and don't need to. The fund does this automatically to maintain its AA.

For people that want a simple investment plan a one fund portfolio offers ease of use.

Blender Bender

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Re: Rebalancing TFSA and RRSP help please
« Reply #14 on: January 02, 2022, 10:27:30 AM »
?  This is literally EXACTLY what they do for you automatically. 

Hmm, is that true?
Say there is AAB (fake ticker) found that has 50/50 AA. Stock goes 50% down, bonds say 0%. I sell 50% of AAB, would that sell all bonds and keep the remaining stock?
My objective would be to sell all the bonds, and sell stock as little as possible.

FIRE Artist

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Re: Rebalancing TFSA and RRSP help please
« Reply #15 on: January 02, 2022, 10:41:42 AM »
?  This is literally EXACTLY what they do for you automatically. 

Hmm, is that true?
Say there is AAB (fake ticker) found that has 50/50 AA. Stock goes 50% down, bonds say 0%. I sell 50% of AAB, would that sell all bonds and keep the remaining stock?
My objective would be to sell all the bonds, and sell stock as little as possible.

Oh, ok, you are talking about a withdrawal strategy, not a rebalancing strategy.  I donít believe that is the OPs issue, they are clearly talking about rebalancing their portfolio during accumulation.

Withdrawal is a whole different topic, and there are many different philosophies around that which I consider to be off topic for this thread.  There is a recent thread about that in the Canadian sub forum that has great discussion. 

Blender Bender

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Re: Rebalancing TFSA and RRSP help please
« Reply #16 on: January 02, 2022, 10:54:30 AM »
?  This is literally EXACTLY what they do for you automatically. 

Hmm, is that true?
Say there is AAB (fake ticker) found that has 50/50 AA. Stock goes 50% down, bonds say 0%. I sell 50% of AAB, would that sell all bonds and keep the remaining stock?
My objective would be to sell all the bonds, and sell stock as little as possible.

Oh, ok, you are talking about a withdrawal strategy, not a rebalancing strategy.  I donít believe that is the OPs issue, they are clearly talking about rebalancing their portfolio during accumulation.

Withdrawal is a whole different topic, and there are many different philosophies around that which I consider to be off topic for this thread.  There is a recent thread about that in the Canadian sub forum that has great discussion.

Right. The OP was not clear about his objectives, making hard to trying to help/respond.
I have read it as "how should i change my accounts" or "what to put to the accounts". Rebalancing seems like step 2, after deciding on AA and what to put where.

But even during accumulation period, having the flexibility to fully respond to market conditions could be priceless.
Also IMHO during accumulation when is 20-40 years away from withdrawing, having a bigger bonds portion is questionable to me.
Even the AA auto-rebalancing happens once/twice a year i guess.
« Last Edit: January 02, 2022, 10:58:00 AM by ArnoldK »

Retire-Canada

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Re: Rebalancing TFSA and RRSP help please
« Reply #17 on: January 02, 2022, 11:32:05 AM »
Even the AA auto-rebalancing happens once/twice a year i guess.

A popular ETF like VGRO is going to be making adjustments regularly to keep up with demand and the management team is not going to let the AA drift much from whatever their mission statement/plan says.
« Last Edit: January 02, 2022, 03:14:19 PM by Retire-Canada »

Freedomin5

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Re: Rebalancing TFSA and RRSP help please
« Reply #18 on: January 02, 2022, 03:08:41 PM »
Initially I was going to follow the general guide from Canadian Couch potato, but as I said, I got side tracked. Also now that I am using TFSA, I feel that using that will over expose me to the Canadian markets.

Bonds: ~10
Canadian: ~30
US: ~30
International: ~30

If this is the AA you want, then it sounds like either VEQT (30% Cdn, 40% US, 30% Intl) or VGRO (80% equity, 20% bonds) is what you want if you want to keep it really simple.

Depending on your income and tax rate, you would either max out your RRSP first if you are high income to reduce your taxable income. Or max out your TFSA first if you have a low tax rate (so you can save your RRSP room for future years when youíre in a higher tax bracket).

Simplify your portfolio and save yourself the headache of having to decide what to buy and where to put it and to save you the temptation of buying somewhat random funds. For example, there isnít really a need to buy VE or XEF or VEE. That will overexposed you to Europe, Europe/Asia/Australia, and emerging markets because VUN already exposes you to emerging markets, in a sense, since most of the large American companies have a large presence in developing countries. Or just buy VXC (everything ex-Canada).

Another option is to go back to Canadian Couch Potato, find a simple model portfolio that works for you, and rebalance your accounts so that it matches with the model portfolio.
« Last Edit: January 02, 2022, 10:34:49 PM by Freedomin5 »

themashedup1

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Re: Rebalancing TFSA and RRSP help please
« Reply #19 on: January 02, 2022, 04:03:34 PM »
Thanks everyone for your input (and for being kind with the replies)