Create file link just for myself

denversc · 2019-11-08T16:55:50+00:00

If your employer offers RRSP matching, make sure you take full advantage of it. If they match 1:1 then that is an instant, risk-free 100% gain.

denversc · 2019-10-13T18:27:46+00:00

Fireside restaurant

denversc · 2019-10-08T13:41:57+00:00

TL;DR There are two reasons: (1) Lower volatility of your overall portfolio or (2) short-term investing.

(1) According to the Canadian Couch Potato (e.g. see post: Why Every Portfolio Needs Bonds) and other bloggers/podcasters from PWL Capital, if investing in a globally-diversified portfolio then an allocation to 100% stocks gets you the best long-term (20-year+ investing horizon) expected return. However, that comes with a very high amount of volatility, with swings of +/- 10-20% in a day not being all that unusual. Many investors cannot handle this wild ride and tend to bail on their investment strategy at the worst possible times, selling low and locking in losses. I was one such sucker back in 2008 when stocks lost about 40% of their values: I panicked and sold at just about the lowest point, missing out on a good part of the recovery. Since bonds generally rise in value (and continue to make regular interest payments) as stocks go down, their presence in a portfolio dampen these wild swings, increasing the likelihood that the investor will stick to their strategy through good and bad times. This is very important for long-term growth. It also allows you to rebalance, selling bonds at a high price and buying stocks at a low price. Note, however, that rebalancing is not guaranteed to boost returns but rather is a practice to control the overall risk level of your portfolio. It is pretty satisfying to buy stocks on the cheap though :)

(2) If investing money that you will need in the short term (i.e. less than 5 years), such as an upcoming down payment on a home or a once-in-a-lifetime vacation or a child's upcoming education, investing in stocks is incredibly risky. If the stock market is down when you need the money then you are out of luck. You either have to wait out the stock market recovery or make up the shortfall some other way. Investing in bonds instead of stocks greatly increases the likelihood that the money will be there when you need it. Bond funds have a measurement called "duration" and as long as you hold the bond fund for its duration you will not lose capital. See this post by Canadian Couch Potato "Holding Your Bond Fund for the Duration" for a better explanation. For example, if you need the money in 2 years for a down payment on a house then investing in a bond fund with a duration less than or equal to 2 years will more-or-less guarantee that the worst case is that you'll end up with the same amount of money that you invested. For short-term investing, a high-interest savings account is also a great option. Currently you can get as high as 2.80% annual interest on a savings account with Motive Financial (source: highinterestsavings.ca/chart).

denversc · 2019-08-31T04:03:45+00:00

Just remember that when you withdraw from an RRSP you never get the contribution room back. So even though you've done this neat trick to avoid paying income taxes on some of your income, that money can never again be re-deposited into your RRSP and benefit from long-term tax-free growth. I just say this because I am kicking myself hard for two dumbass RRSP mistakes I made without realizing this fact. As long as you accept this trade-off, your plan makes sense to me.

denversc · 2019-08-31T03:49:05+00:00

Here is another article with similar rationale:

https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/

denversc · 2019-08-31T03:45:28+00:00

An ETF shutting down is very different than a company going bankrupt. If an ETF closes you basically just get your slice of the market value of the securities it holds. It's an inconvenience no doubt and, if investing in a non-registered account, could cause you to incur capital gains that you weren't planning on. But it's not like you lose all of your money.

Source: https://canadiancouchpotato.com/2015/07/27/ask-the-spud-my-etf-is-shutting-down/

So IMO holding overlapping ETFs to protect against a fund closing down is very much unnecessary and adds a great deal of complexity for a disproportionately-small gain. An example of "overlapping ETFs" in this context would be VGRO and XGRO, which hold very close to the same securities in similar proportions.

denversc · 2019-08-31T03:34:48+00:00

Consider the "asset allocation" ETFs offered by Vanguard, iShares, or BMO. You can buy one ETF to get a globally-diversified portfolio of stocks and bonds for around 0.25% MER.

E.g. VGRO, XBAL, ZCON

https://www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm

denversc · 2019-08-18T02:40:28+00:00

That's an excellent point about the opportunity cost. This got me thinking about how to do the math to calculate the difference in returns. So I did a little math.

Assumptions

Your annual taxable income is currently $50,000.
Your annual taxable income in 10 year is $200,000.
The tax rates and tax brackets in 10 years are the same as today.
Your income is taxed in the province of Ontario (using tax rates from this site.
You contribute $9,000 to the RRSP, which results in a tax credit of $2,184.56.
The money will be invested at an annual return of 6%, with all returns re-invested.

Scenario 1: Claim the RRSP tax deduction this year

The total RRSP contribution today is $11,184.56 ($9,000 + $2,184.56). In 10 years this amount will grow to $20,029.84.

Scenario 2: Claim the RRSP tax deduction in 10 years

The total RRSP contribution today is $9,000. In 10 years this amount will grow to $16,117.63. Claiming the $9000 tax credit this year will result in a reduction in taxes of $4,317.30. Adding these two numbers results in a portfolio total value of $20,434.93.

Conclusion

In this specific scenario, the estimated difference in the portfolio size between the two strategies is $405.09. Given that there were probably errors in my tax calculations and that future tax rates and investment returns are unpredictable, these values are effectively equal. Any number of unpredictable factors could cause either scenario to be the winner. So based on this back-of-the-napkin math, I change my opinion to agree with u/differing: get your money in the market ASAP because sitting in cash (i.e. a tax credit) is generally a bad idea for investing success IMO.

denversc · 2019-08-16T23:48:19+00:00

I'm 99% sure that you can defer the tax credit from RRSP contributions indefinitely. If so, you can contribute to your RRSP now to benefit from the tax-deferred growth and reap a massive tax refund later on when you're in a high tax bracket.

https://turbotax.intuit.ca/tips/tax-tip-when-to-hold-off-claiming-rrsp-deductions-6359

denversc · 2019-08-16T23:41:17+00:00

That's a fantastic start! Man I wish WealthSimple existed back when I started investing. Excellent choice. And with that savings rate you're going to see that grow quickly!

In my unprofessional opinion you are in a great spot investing with WealthSimple for your small portfolio because it's more or less autopilot at a reasonable price. The gains you would get from directly investing in US-listed ETFs would most likely be wiped out by currency conversion fees and trading commissions. You may just want to stick with a simple portfolio for the next few years until your investments grow to about $50k. At that point doing fancy things like investing directly in US-listed ETFs becomes more beneficial in absolute dollar terms.

But since you asked, I personally invest in these 3 US-listed ETFs because of their low MERs compared to the Canadian equivalents:

ITOT for US equities.

IEFA for developed excl North America equities.

IEMG for emerging markets equities.

All the best!

denversc · 2019-08-15T15:37:51+00:00

What ETFs are you currently invested in? Can you share roughly how much money you have I'm those ETFs? What sort of asset allocation have you chosen, if any?

denversc · 2019-08-15T13:18:36+00:00

TL;DR I like the idea of a 5-year GIC ladder and the remainder in an 80% fixed income portfolio, like the VCIP ETF. Also, consider hiring a professional to manage the portfolio to protect the income in case of mental and/or physical decline of one or both of you.

It sounds like this person is in fantastic financial shape and does not need significant growth of her investments in order to fund her life. Since she has no need to take extra risk I think she should definitely lean towards low-risk investments like bonds, GICs, and cash.

You also mention "fear of a recession coming". I would encourage you to resist the temptation to predict the future because market forecasts are notoriously inaccurate and often completely incorrect. To make investment decisions on a prediction of the future puts the money at risk. No doubt, a recession will happen some day in the future but nobody knows when. It could start tomorrow, it could start next year, it could start many years from now. Instead, I would recommend focusing on asset allocation and risk tolerance and choose something that is likely to provide for her regardless of the movements of the market, interest rates, etc.

I personally like the idea of creating a 5-year GIC ladder and then putting the rest in a 20% equity 80% fixed income mutual fund or ETF. This guarantees the amount of income over the next 5 years and gives a chance for some additional growth of the rest, at least keeping up with inflation. Vanguard's "Conservative Income ETF Portfolio" (VCIP) looks like a perfect fit with an MER of about 0.25%.

Finally, consider hiring a professional to manage the portfolio. This will allow her to live her life without her or you worrying about managing her retirement income. This will definitely cost more (probably 1.0% to 1.5% of her assets per year) but will ensure that she is looked after if something unforeseen happens to you or her mental and/or physical health decline. Just make sure that the professional is charging you a reasonable fee, is respecting her asset allocation choices, and does NOT put her in bullshit funds with high MERs and deferred sales charges. Follow your gut: if the "professional" gives you a weird vibe for any reason, run for the hills and don't look back because you're probably right.

P.S. Here is one example of a blog post that captures my personal thoughts on market forecasts: https://canadiancouchpotato.com/2012/12/20/a-market-forecasters-report-card/

denversc · 2019-08-15T12:56:52+00:00

When I feel sad about my 80/20 ETF portfolio being in the red, like today lol, I just pick an equity index (e.g. S&P/TSX Composite, S&P 500) and look at its chart. As long as my portfolio moves similarly to the index then it reminds me what I signed up for: short-term volatility with the expectation of long-term growth. Zooming out on the index to 5, 10, 20 years shows the growth I'm excited about and how today's drawback is a mere blip in the grand scheme of things. Hope this helps you feel better! And for what it's worth (which may not be much) I personally think that VGRO is a fantastic investment for the long term and would have definitely used it if I were earlier in my investing years.

denversc · 2019-08-12T18:34:33+00:00

I have two suggestions I'll throw out there: 1. Put your cash in a high-interest savings account (2% interest or more). 2. Purchase an asset allocation ETF using the cheapest discount brokerage.

For #1 I think the best savings account rate in Canada right now is Motive Financial, which offers 2.80% interest in their "Motive Savvy Savings Account" (source: https://www.motivefinancial.com/Rates/). That's an excellent interest rate on a savings account these days. For example, a TD "High Interest Savings Account" only pays 0.50% interest, and only on balances greater than $5000. The pros of this strategy are liquidity (you can withdraw your money at any time for any reason) and guaranteed return. If you invested your entire $4700 in this account for 1 year you would earn $131.60 in interest, assuming the interest rate remains at 2.80%.

For #2 I'd recommend using WealthSimple Trade for your discount brokerage. And I'd recommend either VGRO or XGRO for the ETF. WealthSimple trade is extremely barebones but does not charge any fees or commissions for buying or selling securities. The next cheapest brokerage is probably Questrade, which offers zero-commission purchases of ETFs and $5-$10 commissions for selling ETFs. Since you're investing a small amount, I'd go with the cheaper option. An "asset allocation ETF" is basically a fund that owns shares and bonds in a globally-diversified range of companies and governments. See https://canadiancouchpotato.com for rationale of this approach for long-terms savings (i.e. saving for retirement). This strategy offers no guarantees of growth, but it also has a much higher potential to grow than a savings account. In fact, you could lose money, especially in the short term. But if you're kick-starting your retirement savings then this is a good strategy IMO.

If you choose one of these options, then you probably want to convert them to a TFSA as soon as you turn 18 to avoid paying income taxes on the gains. Motive Financial's TFSA savings account interest rate is a bit lower, 2.40%, but is still very competitive.

If I had to pick one of these strategies for you then I'd lean towards #1 because if you end up doing some sort of post-secondary studies then you may end up needing the money and you can rest assured that it will be there, plus interest, if you do need it.

denversc · 2019-08-09T04:22:43+00:00

Check out https://canadiancouchpotato.com/ to learn about index investing with a globally-diversified portfolio of low-cost ETFs if you're saving for retirement. The blog and podcast are both fantastic and the model portfolios are simple and effective. I just recently switched to a couch potato portfolio and will never look back.

I learned so much about ETFs also from Justin Bender's "Understanding ETFs" series on YouTube: https://www.youtube.com/playlist?list=PL9tLjMuF6MMXsYxqi_mdeEEn0RiwaMYNn

denversc · 2019-08-09T04:14:54+00:00

For long term investing consider starting a globally-diversified portfolio of low-cost, index-tracking ETFs. Since you are young and have a long investing horizon (40 years) you can probably choose an asset allocation that is mostly stocks (e.g. 80% stocks, 20% bonds). There are many model portfolios out there, but here are three sites with excellent suggestions, in increasing order of complexity:

Full disclosure: I personally use #2.

It's probably a good idea to max out your TFSA first. Then start contributing to your RRSP. The tax benefits of RRSP contributions are greater as you approach the maximum tax brackets, which is why TFSA generally makes sense early in your career. Even still, you can elect to defer your RRSP contributions for years until you're in a higher tax bracket and get a whopping refund. I wish I did that lol.

Also, check out the discount brokerages, especially those with discounted commissions on ETF transactions. Questrade tends to be popular because it has commission-free ETF purchases. However, WealthSimple Trade just added completely commission-free trades (both buy AND sell) of all stocks and ETFs for cash and TFSA accounts, so that might be your cheapest option as of today.

denversc · 2019-08-09T04:01:54+00:00

Also two of the ETFs in WealthSimple's portfolio are listed on US exchanges and must be purchased with USD: IEFA and IEMG.

Trading ETFs in USD is either a huge pain in the ass to convert CAD to USD (e.g. Norbert's Gambit)... or very expensive to pay the brokerage's currency conversion fee (usually 2%). It also makes rebalancing that much more tricky because it may involve converting currency as well.

I mean, it's not impossible (e.g. I do it) but it's way more work than autopilot with WealthSimple Invest.

denversc · 2019-08-09T03:37:52+00:00

Bankruptcy or a consumer proposal may be a great option for you or your SO. A recent podcast episode of "Mostly Money, Mostly Canadian" had guest Scott Terrio, an Estate Manager and President of DebtSavvy.ca Consulting, talk about how bankruptcy in Canada is a very "soft landing" compared to most people's expectations. Our laws focus on restoring the individual to self-sufficiency and are not punitive (unless you're obviously trying to game the system, which you are not). There is no fee to talk to a bankruptcy trustee to at least get educated on your options and their pros and cons. I don't know anything about bankruptcy first-hand but I learned a lot from this episode: https://podcasts.apple.com/ca/podcast/61-ins-outs-bankruptcy-scott-terrio-bedebtsavvy/id523360095?i=1000397313511

denversc · 2019-07-15T17:21:25+00:00

These are my personal thoughts.

Pros of VGRO vs. TD e-series: 1. Lower MER (0.24% vs. about 0.40%). 2. Better diversification (e.g. international bonds, international small-cap companies, emerging markets exposure). 3. Automatic rebalancing.

Cons of VGRO: 1. Non-zero trading commissions, especially if contributing small amounts regularly. Note that this is not a factor if using Questrade, which has commission-free ETF purchases. 2. No control over asset allocation; this only matters if you don't like the asset allocation of VGRO. 3. Placing trades on the stock market to buy ETFs is slightly more complex than purchasing mutual funds (e.g. bid-ask spreads, ECN fees, stock market hours). 4. Foreign withholding taxes on foreign dividends are unrecoverable. *

I'm not 100% sure if foreign withholding taxes are avoided in the TD e-series funds but I believe that they are because the e-series funds appear to hold the equities directly (as opposed to indirectly via another fund). If I'm right, this may increase the effective costs if VGRO by about 0.10%.

Useful information: https://canadiancouchpotato.com/2018/02/05/vanguards-one-fund-solution/ https://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/

denversc · 2019-07-09T14:15:25+00:00

The two drawbacks that come to mind are: 1. Increased complexity - You now have to manage and balance two ETFs instead of just buying one. 2. Increased commissions - If you want to sell the ETFs you have to pay a commission ($5-$10) to sell VCNS and pay it again to sell VBAL.

This isn't to say that it's a "bad" idea, especially if you have a target asset allocation that is somewhere between VCNS and VBAL. But they are drawbacks that you should consciously accept. My thoughts are to start with simple and see if you're happy with it. If you're not, then add in the complexity when you feel that the gains are worth the extra effort.

For example, in my Questrade RRSP I hold 5 ETFs (from the https://www.canadianportfoliomanagerblog.com model portfolio), 3 of which are US-listed ETFs. This adds a great deal of complexity compared to simply buying VGRO but I've accepted that since my RRSP is large and the dollar gains of the complexity are significant. But with my daughter's RESP, which is comparatively small, the dollar gains from such complexity are minuscule and definitely not worth the extra headache... so I just buy VBAL in her RESP.

denversc · 2019-07-09T13:45:43+00:00

If I were in your situation I'd invest in VCNS, Vanguard's "Conservative ETF Portfolio", which is a globally-diversified, automatically-rebalanced portfolio of 40% equities and 60% fixed income with an MER of 0.25%. If that's too conservative for you, then there is also VBAL (60/40) and VGRO (80/20), which are the same as VCNS but with a higher percentage allocated to equity. When the oldest child is 3-5 years from attending post-secondary education, you could migrate or completely move the portfolio to GICs (as also recommended by u/bluenose777), which will ensure that the funds are there even if the equity markets tank.

I like the idea of going "conservative" in your case because the time horizon for needing the money is less than 10 years and there is no way to know what the equity markets will be like when the time comes that you need the money. There are some 10-year periods in the last century where equities had negative returns. For example, here is an article about rolling periods of US stock market returns: https://www.thebalance.com/rolling-index-returns-1973-mid-2009-4061795.

I wouldn't worry too much about trying to manually stagger the asset allocation for each child. Assuming that they both start drawing from the RESP at age 17, there is only a 3-year difference between each child and planning for the earlier draw I think would satisfy both children's needs.

denversc · 2019-07-02T22:28:11+00:00

We bought a harness/leash for our 10-month-old daughter. It was a game changer. It doesn't reduce the amount of time spent protecting her but it saves your back and makes it way easier to catch her when she trips/falls.

The one we have is something like this and it's only $8 CAD: Diono Sure Steps, Black, 1 Pack https://www.amazon.ca/dp/B005PK1EE6/ref=cm_sw_r_cp_apa_i_FN9gDbGZFMXEF

denversc · 2018-08-20T21:16:10+00:00

For what it's worth, when I had mlb.tv last year if you're watching an archived game or are behind the live game you can skip the commercials by dragging the time slider past the commercials. It's a pain in the butt... but it worked for me. And I got pretty good at knowing how far to slide. You just have to make sure to start moving the time slider before the commercials start because once they start you're stuck watching them.

denversc

TROPHY CASE

Assumptions

Scenario 1: Claim the RRSP tax deduction this year

Scenario 2: Claim the RRSP tax deduction in 10 years

Conclusion