Author Topic: RRSP, TFSA, couch potato  (Read 8394 times)

tomatoprincess

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RRSP, TFSA, couch potato
« on: April 05, 2013, 08:39:19 PM »
Reading about investments always makes sense until I have to actually do it, than things becomes complicated and my brain short circuits. So I have decided to post my plan and see if all you smarties have any suggestion.

My investment plan is to follow the couch potato method of investing in ETFs. Even though I only have around $11k to invest in right now, I chose ETFs over TD e-series because Questrade offer free buys on ETFs, and since the idea is to buy and hold, I am not worried about commission. I would likely plan to sale when I would like to retire, by than I likely would have enough in there that I wouldn't be worried about commission vs. funds in e-series. Am I correct to assume this??

The allocation I think most appropriate for me at this stage is:
Bonds: 25%
Canadian equity: 25%
US equity: 25%
International stocks: 25%

Given the above, and knowing that for 2013 I'll have a contribution room of:
RRSP: $14k
TFSA: $16k

I know for 2013 I would likely be able to invest ~$40k. In my readings I feel it makes the most sense to put the bonds in TFSA, Canadian equity in taxable account, US and international stocks in RRSPs.

This is where my brain explodes, because it means $10k in each category, which doesn't reflect well into my contribution room. How do you all go about figuring this out?? And I could only imagine for 2014, things would shift and I'd be back to digging a hole trying to figure out what goes where.

Thanks for your advice in advance!

icefr

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Re: RRSP, TFSA, couch potato
« Reply #1 on: April 06, 2013, 10:34:14 PM »
You do it in an almost way. Don't let perfect be the enemy of good.

For example, you plan to put $14k into your RRSP, $16k into your TFSA, and $10k into your taxable account. You want to put $10k into each category.

Ideally you would do:
$10k TFSA - Bonds
$10k Taxable - Canadian equity
$10k RRSP - US stocks
$10k RRSP - International stocks

But you can't.

So I would do this as a compromise:
$10k Taxable - Canadian equity
$10k TFSA - Bonds
$10k RRSP - US stocks
$4k RRSP - International stocks
$6k TFSA - International stocks
(Or put $10k International stocks and $4k US stocks in your RRSP and then $6k US Stocks in your TFSA)

You can't really achieve the exact best way, but this should be close enough really.

Dee

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Re: RRSP, TFSA, couch potato
« Reply #2 on: April 07, 2013, 05:29:49 AM »
Another option is to keep your Cdn equities in the TFSA or RRSP for the time being, since you have the contribution room. Once you max out on contribution room in there and you are at the point of making another buy, like some more bonds and US equities, you sell the Cdn equities within your sheltered plan, buy the new equities within the sheltered plan, and buy the same Cdn equities you just sold back again, in your unsheltered account. If this just involves one Cnd equity ETF, it should just be an extra $4.95 in trading fees on Questrade for the extra sale.

KMMK

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Re: RRSP, TFSA, couch potato
« Reply #3 on: April 07, 2013, 10:36:23 AM »
Since rebalancing is a big part of the couch potato plan, I prefer to have all 4 types within the same account type (TFSA, RSP, taxable) so it's easy to rebalance. I'm sure you can re-balance between them but I don't want to deal with the hassle of removing from an RSP or TFSA until I have to. So what I'd do in your situation, and what I do do currently, is a have a TD self-directed RSP account and split whatever money I have there between the 4 groups, and do the same within a TFSA and eventually taxable. Yes, it's a little more fiddling, but seems simpler than the alternative. And the math is super easy.

The TD purchases/transfers for e-series are without cost. There is a small annual fee but it's waived once the investments are over $20,000-25,000 - I can't remember exactly how much.

tomatoprincess

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Re: RRSP, TFSA, couch potato
« Reply #4 on: April 07, 2013, 07:31:05 PM »
Thanks for all your responds! This will be a big step for me as I'm used to having my money sitting somewhere "safe", we'll see how I deal with the ups and downs.

icefr and Dee thanks for laying things out for me, makes it seem less complicated.

Kestra, the reason I'm wondering where to stick things is d/t this article: http://canadiancouchpotato.com/2010/03/05/put-your-assets-in-their-place/

What do you think? It works in my head that if I have 10k in bonds, earning 2.5% interest, having it in a taxable account with 32% marginal rate would be $80 paid in tax. I realize bonds may eventually spill over to taxable accounts, but still seem to make sense to try and stick most of it into TFSA or RRSP. Ease of maintaining the accounts is also important to me, so perhaps I will follow your suggestion.

cjottawa, I am very likely to max out the registered accounts this year, in your opinion is it better to set the structure at the beginning or restructure half way through?

Thanks again all of you for helping this newb.

strider3700

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Re: RRSP, TFSA, couch potato
« Reply #5 on: April 08, 2013, 10:50:59 AM »
I'm in the process of doing the same.  I'm pretty sure that even with the dividend tax credit it still is better to put things in the RRSP/TFSA's while I have contribution room so  I won't be worrying about a regular account for awhile yet.

I started with 100% of my ETF's in my TFSA  but the foreign  etfs are going to take a penalty being in there.  I'm not sure if I can move them from one account to another penalty free or if I basically need to sell and rebuy them in the other account.   At that point I doubt the tax penalty from just holding them in the wrong account will be as much as the selling costs so I'll just let what I have sit there and start adding to the other account from that point on.   A bit of a pain to keep clear is all.


tomatoprincess

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Re: RRSP, TFSA, couch potato
« Reply #6 on: April 18, 2013, 07:59:58 PM »
I'm starting!!!

I bought my first etf EVER today, I decided on XBB for the bond category. Still looking at the rest to see what I want in each category.

Silly question, I know bonds give you "income", if I use Questrade, where does the "income" go? I could not find the answers despite a search on iShares, and there was no category to choose on Questrade either.

daverobev

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Re: RRSP, TFSA, couch potato
« Reply #7 on: April 18, 2013, 08:16:52 PM »
I'm starting!!!

I bought my first etf EVER today, I decided on XBB for the bond category. Still looking at the rest to see what I want in each category.

Silly question, I know bonds give you "income", if I use Questrade, where does the "income" go? I could not find the answers despite a search on iShares, and there was no category to choose on Questrade either.

It stays in your account - the "cash available to invest" goes up, every month I think it is with XBB.

ZCN for Canadian is good. VXUS (in your RRSP - it's in US$) for foreign-non-US. VTI I believe for US (I don't have any. Also in US$ so preferably RRSP).

ZRE for REIT.

IMHO!

tomatoprincess

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Re: RRSP, TFSA, couch potato
« Reply #8 on: April 18, 2013, 08:44:09 PM »
I'm debating for Cdn Equity between ZCN or VCE. ZCN seems like the better idea, but the vanguard is tempting cause of all the hype people have for the company, and slightly lower MER.

For US and international, I'm thinking I will likely go with XWD or have VFV and find an additional international one.

Oh decisions decisions. I'm leaning towards XWD since I suspect there might not be too many options in Canada just for the international one, and I'm tired of learning about ETFs (for now) to research the buying in US dollar component.

daverobev

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Re: RRSP, TFSA, couch potato
« Reply #9 on: April 19, 2013, 07:34:28 AM »
I'm debating for Cdn Equity between ZCN or VCE. ZCN seems like the better idea, but the vanguard is tempting cause of all the hype people have for the company, and slightly lower MER.

For US and international, I'm thinking I will likely go with XWD or have VFV and find an additional international one.

Oh decisions decisions. I'm leaning towards XWD since I suspect there might not be too many options in Canada just for the international one, and I'm tired of learning about ETFs (for now) to research the buying in US dollar component.

I hear you re VCE, but it only holds 100 or so stocks, and ZRE holds 250. Now, to be fair, 30+% of both are in the top 10 stocks which is horrible, but you are *more* diversified with ZRE. They will both probably do about as well.

There is an equal weight TSX 60 ETF out there, I forget the ticker. Might be a Horizon one. I wouldn't stress too much though, you could flip a coin and be ok with either!

tomatoprincess

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Re: RRSP, TFSA, couch potato
« Reply #10 on: April 21, 2013, 08:13:09 PM »
I posted this in another thread recently but it's probably even more relevant here.

This is the best article I've seen comparing the basic arithmetic of TFSA versus RRSP:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/02/the-basic-arithmetic-of-rrsps-and-tfsas.html

Thanks! It was very helpful.

I'm done reading about etfs I'm interested in (for now!) and decided on 4, one for each category. I've attached my simple excel sheet that I used to organize the different ETFs I was looking at. I subsequently found the same info at Couch Potato: http://canadiancouchpotato.com/recommended-etfs/

Here are some other links I found extremely helpful for a beginner like me:
http://ca.ishares.com/understand_etf/index.htm
http://canadiancouchpotato.com/model-portfolios/
http://www.learnstocktrading.ca/classroom/securities/etfs/types_of_etfs.aspx

And of course thanks for all your replies!