TFSA - am I on the right track?
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A/R, I thought you were pulling my leg, but a little googling supports your assertion!
The converse is not true where there is a cap gain, however..the CRA want their money.
I guess I’ll have to sell and re-buy.
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Careful. You can never claim that loss if you turn around and buy that same thing in your registered account. Per https://www.taxtips.ca/personaltax/investing/investmentlosses.htm
Also make sure you leave 30 days in between your sell and your buy (wherever that may be) in a non-reg account to also avoid a superficial loss. Also,
* There are times when it can make sense to avoid 2 buy/sell commissions and I think Agent99 has done this with withdrawals from a RRIF....where X shares worth, for example, $10k are withdrawn from the RRIF as part of the minimum annual withdrawal in January. $6k worth of those X shares can then be re-contributed to the TFSA (best to do it right away) for the annual TFSA contribution. Best to do it right away before those shares lose value sitting in non-reg account for even one day. Personally, I think this is a lot of unnecessary mathematical hoops to save $20 in commissions.
Also make sure you leave 30 days in between your sell and your buy (wherever that may be) in a non-reg account to also avoid a superficial loss. Also,
I find it bizarre most* of the time why ANYONE would transfer in kind to their registered account. Firstly, one has to get the dollar value right (no over-contribution) and one has to pay cap gains on anything moved in. So much simpler just to contribute cash instead.
* There are times when it can make sense to avoid 2 buy/sell commissions and I think Agent99 has done this with withdrawals from a RRIF....where X shares worth, for example, $10k are withdrawn from the RRIF as part of the minimum annual withdrawal in January. $6k worth of those X shares can then be re-contributed to the TFSA (best to do it right away) for the annual TFSA contribution. Best to do it right away before those shares lose value sitting in non-reg account for even one day. Personally, I think this is a lot of unnecessary mathematical hoops to save $20 in commissions.
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If you're moving less liquid securities -- for instance, preferred shares -- you also save the bid/ask spread.
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A good point for sure, but why have illiquid securities in the first place? There are so many easy investments out there to avoid that whole scenario. As specifically for prefs, heaven help anyone who holds prefs in a registered account. The only reason they are marginally a suitable investment is to be a fixed income alternative in a non-reg account for the DTC.
I've been playing a bit of devil's advocate in this thread today for a reason. Why make investing complicated? The 80/20 rule is so easy to apply. 20% of the effort for 80% of the solution....with the remaining 80% of the effort providing (maybe) another 20% of the solution, and that is if one doesn't screw it up along the way. I've avoided all this shite for years via a pretty simple overall portfolio....for a CAGR of almost 10% over the past 10 years. Why aim for 10.1 or 10.3% by working 5 times as hard at it? And only if you are lucky in placing the right bets?
Why would heaven have to help me just because I have a pfd in my RRIF that yields 5.5%? Is that in some way worse than holding a corporate bond in RRIF that yields 3%? Or a GIC yielding 2.2%?
Sure, I don't get the benefit of a DTC on dividends that I would get in a taxable account. But what difference does it make? The money is in the registered account, not in the taxable account. Why not get the better yield?
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It is a waste of room in a registered account to have a security that doesn't provide enough capital appreciation potential vs risk of capital loss. IOW, a 5.5% yield doesn't compensate for the potential capital loss versus a common which at least has more certainty of capital appreciation while at the same time also providing a 5% dividend with dividend growth potential. I'd much rather have commons in registered accounts.
With that thinking, then presumably you wouldn't recommend corporate bonds in registered accounts either?
To me, getting double the yield on a pfd over a corporate bond is well worth while. No greater risk of loss really. Stock of same company has greater risk of loss and no greater yield. All taxed same way on withdrawal.
That's my view anyway! I use a mix of stocks, bonds, gics, pfds in my RRIF and don't see a need for help from heaven
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Bonds have a maturity date while prefs do not which is a big difference. The concept of fixed income is 'Return OF Capital', and one has them to reduce volatility and add diversification. Prefs don't do that and for that reason that is why they are considered hybrid securities by the investment community. Won't argue any more over ground we've argued about before and derail the thread further.
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One very important thing about the DRIP decision is making sure the dividends and distributions actually do get reinvested. Posters here are avid investors that will carefully manage a portfolio and ensure that distributions do get invested.
Many less hands-on investors would just let the cash build up, especially as time goes on and they may not have time or the will or a good strategy for keeping cash invested. In that case, DRIPping makes more sense.
One thing that irked me about broker drips is they cannot buy fractional units. So the broker takes the cash and buys the nearest number of full units, and there is always some extra cash building up in the account anyway.
Many less hands-on investors would just let the cash build up, especially as time goes on and they may not have time or the will or a good strategy for keeping cash invested. In that case, DRIPping makes more sense.
One thing that irked me about broker drips is they cannot buy fractional units. So the broker takes the cash and buys the nearest number of full units, and there is always some extra cash building up in the account anyway.
Don't recall ever doing that, but might have discussed the possibility. Always contribute allowable amount in cash.
I won't either, but maybe should start to look for some of those common stocks with more certainty of capital appreciation that you mentioned
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Okay, maybe someone else. A number of folks get hung up on a $10 commission. Penny wise and pound foolish sort of thing.
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37 Posts
Hey guys thought I give everyone an update. Made some changes and here is the result
My TFSA 112k - Zdv & vgro 60/40 split between the two. Maxed out
Wife's TFSA 118k - BCE, SLF, ZRE and Bns.. 20% each for the stocks and 40% for ZRE
A better result than my original post or is it? I still drip albeit many do not here. I still believe in the compound effect of dripping and rebalancing when adding the 6k each year....
Haven't done the irr calculations yet.... But my portfolio has recovered since the crash last year which I'm happy about.
How's everyone else doing so far??
My TFSA 112k - Zdv & vgro 60/40 split between the two. Maxed out
Wife's TFSA 118k - BCE, SLF, ZRE and Bns.. 20% each for the stocks and 40% for ZRE
A better result than my original post or is it? I still drip albeit many do not here. I still believe in the compound effect of dripping and rebalancing when adding the 6k each year....
Haven't done the irr calculations yet.... But my portfolio has recovered since the crash last year which I'm happy about.
How's everyone else doing so far??
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100 Posts
Why did you choose ZDV? Not that it's terrible but their chart doesn't look like a lot of growth and the dividend is low. I point out the dividend because I too have stocks with little to no growth but I'm getting 9% yield on them.
Just spitting an idea out there, but if you compare ZDV's chart with TD's, I think I would go with TD. I know a single company is riskier than an ETF but.... it's TD. I think I would anyways. What does everyone think?
But just so you know, I'm not criticizing. We're just discussing
You have done a great job saving, investing and building your wealth. Probably much better than I did.
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Did it to increase US exposure and for diversification. Duringthe crash last year, it did better than most of my other positions becauae of the mix of large stable us companies. There is decent growth and a decent dividend... I've had it for 7 years and it's done very well. Don't bet against American as they say...Why did you choose ZDV? Not that it's terrible but their chart doesn't look like a lot of growth and the dividend is low. I point out the dividend because I too have stocks with little to no growth but I'm getting 9% yield on them.
Just spitting an idea out there, but if you compare ZDV's chart with TD's, I think I would go with TD. I know a single company is riskier than an ETF but.... it's TD. I think I would anyways. What does everyone think?
But just so you know, I'm not criticizing. We're just discussing
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20,164 Posts
I think ZDV is a pretty nice portfolio. But I don't understand why you'd hold it inside a TFSA. It's a dividend ETF, and the only point of holding those is to get cashflow (cash distributed).
It is a misconception that taking the dividends and reinvesting them leads to compounding. This is because each dividend reduces the share price; the DRIP just gets you back to where you started. There is no new money generated in the process (dividends are not free money). Proof of this can be found in the long term performance figures for a market index ETF versus dividend ETFs. If you compare those, you will see that over the long term, dividend ETFs do not outperform the broad market index.
If it was true that dividends generated new money and reinvesting them led to compounding, then you would see long term outperformance in things like VYM versus SPY (using an American example). Performance figures always calculate the reinvestment of dividends so if there was an extra performance boost due to compounding, it would show up in performance figures. The 10 year performance of VYM is 12.08% which is less than 14.13% for SPY. Clearly, there is no performance boost or free/extra money offered by reinvesting dividends.
Or look at DVY with 15 year performance 8.01% which is lower than 10.15% for SPY. Again this shows a higher total return in the regular market index, with no benefit from the dividend ETF, even though it's being reinvested every time.
So while I think that a dividend ETF makes sense if you want to live off the cashflow, it makes no sense if you're just going to DRIP the dividends. I think that XIC is better than ZDV.
I know people hate it when I say this, but every dividend is equivalent to selling shares, which knocks down the share price. They aren't free money, and they don't boost returns when reinvested. The proof is in those long term performance numbers.
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Clarifying: I don't see anything harmful about ZDV or another dividend ETF. I just don't see a reason it would outperform XIC over the long term.
My guess is that you're likely better off in XIC mainly because it has lower fees. I think it's kind of a waste to pay an extra 0.33% MER for ZDV, when there is no expected performance benefit.
My guess is that you're likely better off in XIC mainly because it has lower fees. I think it's kind of a waste to pay an extra 0.33% MER for ZDV, when there is no expected performance benefit.
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100 Posts
1. One would have a dividend position to generate cash flow that can help buy other stocks, such as growth stocks or to further diversify. I want to buy EIT (11% yield) in my TFSA to help push me past $1K/month in dividends. Without dividends, I would be slower at buying many growth stocks.
Maybe you could argue that if I just bought the growth stocks in the first place, I would have better returns. Maybe, but love buying new stocks when I get paid dividends - it makes the journey more fun
2. Can you please clarify? I get $5 in dividends, reinvest, and the next month I get $5.15 cents. That's compounding. Maybe you mean to say something else, like there's a better way to compound or something.
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