New Website!

For those who know me, they know that I have a big issue with commitment. The word itself… shudder. 🙂

Anyways, at Dividend Ninja’s suggestion, I now have my own domain name and website at! I have absolutely no experience with web pages so please bear with me as I continue to learn and figure out what I’m doing!

If you have previously subscribed, please re-subscribe on my new site and update any links you may have. The past 3 months have been amazing and here’s to many more! Thanks for your continued support!



POT: Portfolio Optimized for Taxes

Hey, I had to peak your interest somehow. 🙂

Taxes, taxes, taxes! Everyone’s favourite time of year! In previous posts, I commented on how I wanted to hold certain types of investments in specific accounts. The reasoning behind this is how the investments are taxed, and I want to hold it in the most tax efficient place possible. This is a very broad overview as I want to try to keep it as simple as possible. I’ll even try to avoid calculations!

In general, I own Canadian bonds, Canadian equities, US equities and International equities. Based on the previous post, bonds will be subject to interest income and capital gains/losses, while my equities will be subject to dividends and capital gains/losses.

Canadian bonds

Interest income is taxed at 100% of your marginal tax rate. This is similar to how employment income (paycheques from your employer) is taxed. As a result, bonds are best held in either a RRSP account or a TFSA. Remember, in a TFSA, all the interest income and capital gains you earn will never be taxed. Consequently, you will not benefit from any capital losses either. In a RRSP, you will eventually be fully taxed when you start withdrawing the money, regardless if the money was made from interest income or capital gains.

Canadian equities

Dividend income (from a Canadian corporation) and capital gains are taxed favourably in Canada. In other words, there are fewer taxes when the income you earn is from the previously mentioned sources. As a result, Canadian equities are best utilized in a non-registered account.

US equities and International equities

Ideally, you want any foreign investments in your portfolio to be held in your RRSP account. Even though dividends are taxed less than investment income, this only applies to dividends from Canadian corporations.  Even though you will be taxed at 100% of your marginal rate when you eventually withdraw money from your RRSP, the tax deferral allows the money to compound without tax consequences until then. If you hold foreign investments in your TFSA, you will be subject to a 15% withholding tax on all dividend payouts. As these earnings are sheltered within your TFSA, you will not be able to claim this tax amount back when you are completing your annual tax return.

So a quick recap:


  • Fixed Income: (Bonds)
  • Foreign Equities


  • Fixed Income: (Bonds)


  • Canadian equities

The actual benefits from the tax savings depends on many factors, such as which province in Canada you reside in, as well as the level of income you are at. The above is the ideal allocation, in practice, it is not always easy to achieve. My portfolio is the perfect example. If you are just starting to build your portfolio, keep the above guidelines in mind.

I believe this may be advanced knowledge that may intimidate some; Level 5 in my Financial Well-being game. If this is something you are interested in and ready for, great! If the above is going to scare you and make you hesitate about investing, or even delay investing at all, I say forget about it! The best thing you can do for yourself is to start investing early (now is the next best time) and consistently and just let compounding do its magic.

I need your help! As this is a new blog, please spread the word on Facebook, Twitter, or email the link to a friend or family member. Thanks for the support!

Why invest in the first place?

I know you have been following along faithfully (of course!) and have set up an Automatic Savings Plan (ASP) that is currently going into investments. That means, each month, you are contributing a set amount of money into your accounts (RRSP, TFSA or non-registered) and investing them in either low-cost index mutual funds or Exchange Traded Funds (ETFs).  So the money is going to start rolling in, right? Wait… how exactly does the money start rolling in?

There are a couple ways to earn income on your investments:

  1. Interest from bonds. When you are lending money to either the government or corporate companies, they will, in return, pay you money for it. This is no different than when you are borrowing money from credit card companies or money for a mortgage from the bank; you will be paying them money (called interest) for the privilege of using it. Therefore, when you own bonds as investments, you will earn a steady income from it.
  2. Dividends from stocks. When you buy shares in a company, you are providing them with money that is ideally used to grow the company’s business, and consequently, help them increase the earnings and profits for the company. The board of the directors may then decide to share these earnings and profits with you, the shareholder. This payout is called dividends, and is usually quoted as a dollar amount per share. For example, if the company chooses to pay $0.25 per share, and you own 1,000 shares, expect to receive a dividend payment of $250. One thing to note about dividends is the ex-dividend date. It is the date in which you have to own shares in the company to be eligible for the dividend, which will be paid out at a later date. For example, say the ex-dividend date is February 23. If you own shares on February 22, you will be entitled to the dividend payout. If you buy the shares on February 23 (therefore not owning the shares on February 22), you will NOT be eligible for the next dividend payout.
  3. Capital gains. Ultimately, this is the main reason why most people invest in stocks (and ETFs and index mutual funds). If the company is earning money and profits, the value of the company is also (hopefully!) growing. As the value of the company increases, the cost of buying shares in the company also increases. Say you buy a share in company ABC today for $10. The company is profitable and in 2 years, a share in company ABC now costs $25 to own. A capital gain results when you buy a share at one price, and sell it later at a higher price. For example, say you bought a share in Company ABC for $10, and 2 years later, sell it to someone else for $25, then the capital gain for the investment will be $15 ($25 – $10 = $15). NOTE: This is a very simplistic view! Unfortunately, the above scenario does not always occur as the stock market is an entity that can fluctuate based on external factors such as government policies, economic environment, civil unrest or even just the popularity of a product or brand.

Clear as mud, right? 🙂 Hopefully, this will shed a bit of light on why people choose to invest their money in stock markets or ETFs or mutual funds in the first place.

Final question: Say you own shares in company ABC and you decide to sell them on February 23. If the ex-dividend date is February 23, will you be entitled to the dividend payout?

I need your help! As this is a new blog, please spread the word on Facebook, Twitter, or email the link to a friend or family member. Thanks for the support!

Case Study 1: February 2012 Update

We first met our case study two months ago; you can compare this with last month’s update to see their progress.

The following net worth summary is based on information that was accessible at our last meeting. You will notice that some numbers are unchanged as new information was not yet available.

February 2012



Savings 1


Savings 2


Term deposit








Credit Card 1


11.99% interest rate

Credit Card 2


21.99% interest rate

Credit Card 3



Credit Card 4



RSP Loan


13% interest rate

Credit Card 5


0% interest rate

Home Renovations


0% interest rate



Net Worth


                  + 1,195

Month 2: Action items

  1. Their saving accounts are earning pennies (literally!) every month. The balances will be transferred to their ING savings accounts to earn 1.5% instead. The saving accounts have been transferred over; unfortunately, $400 was withdrawn and spent on purchases this month.
  2. They have noticed that there are service charges showing up on their bank statements and are unsure what they are. They will investigate these charges with their bank this month. Still need to do.
  3. They are going to call credit card companies 2 and 5 to see if they can get a reduction in the interest rate. They called credit card company #5 and were able to secure a 0% interest rate for 6 months! They still need to call company 2.
  4. They have to cancel their current $400 contribution to their RRSPs in order to boost the amount of money they have in their spending plan as well as have some additional money to put towards their credit cards. Done! They are investing with a family friend. They have no idea what they’re invested in, what asset allocation is ideal for their age, or what their fees are. They have no idea what a mutual fund is. They are currently in active mutual funds and they refuse to change them. Once spending is under control and debts are paid off, we will chat about investments. Baby steps.
  5. They are currently contributing $100 each to their ING savings accounts. Based on this month’s cash flow, I would like to see this number increased a bit going forward. Done! They are contributing $100 to one account and $200 to the other account.

Month 2: Goals

  1. Make additional payments towards Credit Card 5 beyond the minimum payment, and have it completely paid off by April. In progress.
  2. Have Credit Card 2 completely paid off by June. In progress.
  1. With a month under their belt, they realized that the spending plan that I set up for them is pretty reasonable, but have negotiated an additional $200 for miscellaneous expenses. They are currently contributing $400 a month to an advisor to invest in mutual funds on their behalf. After a couple of discussions, I have (hopefully!) convinced them that their priority should be paying off their very expensive debt instead of investing in mutual funds for the time being. Once their consumer debt has been cleared, then we can start chatting about investing, with the primary goals of setting up a comfortable emergency fund and maximizing their TFSAs. So if they discontinue this $400 contribution to their RRSPs, they can use $200 towards their discretionary spending and use the other $200 towards paying down their debt. Fail! They blew their variable spending budget by almost $500.

It’s been a tough month. The good news is that their net worth did increase so they are heading in the right direction, but they withdrew part their savings to supplement their variable spending. They still plan to pay off both credit cards 2 and 5 by June.

Month 3: Action items

  1. They have noticed that there are service charges showing up on their bank statements and are unsure what they are. They will investigate these charges with their bank this month.
  2. They are going to call credit card company 2 to see if they can get a reduction in the interest rate.
  3. They are also being charged ‘identity theft protection’ on their credit card number 2. They need to call them and cancel this, although they do not remember ever agreeing to this.
  4. They are currently contributing $300 combined to their ING savings accounts. I would like to see this increased to $400 this month.
  5. They are going to make minimum payments on their 3 outstanding credit cards, and a minimum of $2,000 additional payment on credit card 2 since credit card 5 is sporting the enviable 0% interest rate.
  6. MOST IMPORTANTLY, they are going to try to reign in their variable spending back to the agreed upon amount of $900.

What do you think of their progress? Are you enjoying the case study and the update? Would you like to see more case studies on here?

I need your help! As this is a new blog, please spread the word on Facebook and/or Twitter! Or email the link to a friend or family member!

Portfolio Update – January 2012

Anyone else a bit frustrated that the market has gone up since January? Anyone at all? 🙂 To be fair, it definitely boosts my net worth value, but I’m looking to do a bit of purchasing so I’m waiting for it to drop a bit. Yes, I know, you’re not supposed to time the market. Yes, I know, studies have shown that, over the long term, fees and asset allocation play larger roles to your portfolio’s return. Yes, as I write this, I know that I sound like a complete hypocrite. But hear me out!

So this is what my investment portfolio looks like:

TFSA – Stocks (CRS, SLF), ETFs (VTI, XSB)


Non-registered investment account – ETFs (XIC)

Can you spot the change? My goal is to align both my target allocation and to hold the investment in the most tax-efficient location. As a result, I have removed my XIC (Canadian equities) holding from my RRSP account and will add it to my non-registered account. I am waiting for XIC to drop a bit in price, as well as watching how the Canadian dollar is moving with the US dollar as all the money in my non-registered account is currently in US funds. My deadline is that I will purchase XIC before the ex-dividend date of its next payout (mid-March I think). We will see if I will get burned by this. Who knows, I might just go buy it after I finish this post. Anyways, when I sold my XIC holding in my RRSP, I immediately bought VEU as my international equities was lagging.

My target allocation is:

Canadian equities: 30%

US equities: 25%

International equities: 25%

Canadian bonds: 20%

My current allocation is:

Canadian equities: 21%

US equities: 25%

International equities: 23%

Canadian bonds: 18%

Cash: 13%

So even when I replaced XIC with VEU, my international equities is still lagging a bit. I’m still debating if 2% is enough to make another purchase though. I know I definitely need to boost my Canadian holdings. With the remaining cash (I made my 2012 TFSA contribution), I’m debating whether or not to add to my bond holding or maybe add a REIT ETF. My target for the REIT would be 5%, which will drop my target bond holding down to 15%. Or maybe add a real return bond component? Decisions, decisions.

What do you think? Should I add REITs to my portfolio and drop my bond allocation down to 15%? Or add in a real return bond component instead? What does your current portfolio look like?

I need your help! As this is a new blog, please spread the word on Facebook, Twitter, or email the link to a friend or family member. Thanks for the support!

Exchange Traded Funds (ETFs) – Part II

Building a balanced portfolio with ETFs is pretty straightforward. Similar to mutual funds, as their popularity started rising, companies started providing pretty nifty sector-based or currency-based ETFs. If there is a certain type of market or sector you want to target, there is probably an ETF for it. That being said, the MERs for these products are a lot higher, and your diversification is reduced. So remember, KISS is the way to go. Only reference to Valentine’s Day; I promise! 🙂

Once your accounts are set up and funded, then what? How do you choose what to invest in? Determine your asset allocation and choose the corresponding funds. Since I am 30, I will have 30% in bonds.

30% Canadian bonds – XBB (MER of 0.30% for 2011)

24% Canadian equities – XIC (MER of 0.25% for 2011)

23% US equities – VTI* (MER of 0.07% as of April 29, 2011)

23% International equities – VEU* (MER of 0.22% as of February 25, 2011)

* VTI and VEU are Vanguard products. As they are traded on the US stock exchange, you will be subject to additional costs based on how our Canadian dollar is doing compared to the US dollar. It is currently around par, but you have to remember that the brokerage will take some fees to transfer between the currencies. The lower MERs should make up the difference, but it is something you should be aware about. Another option is to replace VTI and VEU with XSP and XIN which are the i-Shares equivalent. The corresponding MERs are 0.24% and 0.50% respectively.

Assuming your portfolio allocation is IDENTICAL to your ideal asset allocation, your portfolios’ MER is approximately 0.2167% a year. The MER for the TD e-series portfolio is 0.435% a year. Compare these to the average mutual fund in Canada which boasts an average MER of 2.50%. You are saving yourself over 2% every year! Add in the magic of compounding

Sound familiar? It should! I wanted to keep the message consistent; it will seem very intimidating to start, but once you set your allocation and know what your investment plan is, it will become more manageable. You’ll wonder why you didn’t do this earlier! (I know I did!)

Now that you are armed with all this additional information, take a look at the update I did for my own portfolio. (Yup, definitely due for a new update!) You can see that it is pretty messy! I have a lot of ETFs that are overlapping (VTI and XSP for example). This was a result of setting up my target allocation, but also learning new things along the way. My portfolio is the guinea pig! I could just sell all the extra ETFs, but I have to be mindful of the transaction costs, so I made the decision to only re-balance when I put in new money. It is slowly becoming cleaner!

As I mentioned before, I want a well-balanced and diversified portfolio, but I also want to achieve it the easiest way possible. You can always add a couple other ETFs to tweak the annual return and risk factor (i.e. I am looking into adding a REIT ETF into my portfolio, and I’m definitely a fan of the Complete Couch Potato portfolio) but I do strongly believe that the simple portfolio above is sufficient enough to beat your current bank or investment company portfolio in the long run. Once you become more comfortable with investing, you can always learn more and add ETFs to tweak the return, but if investing is intimidating enough for you, the above portfolio is great!

What do you think? Ready to dip your toe in and start building your own portfolio of ETFs?

I need your help! As this is a new blog, please spread the word on Facebook, Twitter, or email the link to a friend or family member. Thanks for the support!

Exchange Traded Funds (ETFs) – Part I

Now that you’ve had time to read (and absorb hopefully!) all the wonderful information about mutual funds, you must be wondering what ETFs are, and why I prefer them over a portfolio of cheap index mutual funds.

What are they?

ETFs are very similar to mutual funds as they are essentially a portfolio of stocks and/or bonds. The main difference is, as the name implies, that these funds are traded on a stock exchange. So instead of going to your friendly neighbourhood bank or investment company and having them purchase mutual funds on your behalf, you will need to set up a brokerage account and actually purchase the ETFs yourself. You can set up a brokerage account at companies affiliated with the large banks (i.e. RBC Direct Investing or TD Waterhouse), or you can set up an account at a discount brokerage (i.e. ETrade or Questrade). Once your brokerage account is set up, you can then proceed to purchase and sell ETFs on the stock market.


ETFs have similar advantages as index mutual funds do: they provide diversification, the MERs are cheaper than both normal mutual funds as well as index mutual funds, you have a fund manager to purchase all the underlying securities for you, and you can easily sell your ETFs on the stock market if needed. Another big advantage is that you can control the tax implications on your portfolio (i.e. you can only trigger capital gain or losses when you sell your ETF, therefore, effectively timing the tax implications to your advantage).


Transaction costs – as every ETF is traded like a stock on the stock exchange, there is a transaction cost every time you buy or sell. Depending on the size of your portfolio, this may end up being an advantage, but you will have to remember to take into account both transaction costs as well as MERs when determining the cost of your portfolio.

Stock-like feature – the ability to buy and sell an ETF on the stock market is a great advantage, but it can also be a great disadvantage as well. It may become tempting to watch the movement of the price of the ETF and one may try to time the market to lock in gains. This will result in increased transaction costs as well as adding complexity into the equation. Remember, we want the easiest, most cost effective way to save and grow our money. We do not want to add in temptation to sabotage ourselves!

As long as you stick to broad-based market index ETFs, you should be able to replicate index mutual funds at a fraction of the cost. If you are just starting to invest and do not have a large sum of money, or if you are intimidated by the thought of having to purchase ETFs on the stock market, you may want to stick to the e-series index mutual funds for the time being. Once your investment portfolio grows to around $50K, it may be worth looking into replacing the index mutual funds with ETFs as the MERs are much lower and you will have a lot more control over your portfolio.

In Part II, I will go over how you can set up diversified and well-balanced portfolio using ETFs.

What do you think? Are ETFs something you are considering adding to your portfolio?

I need your help! As this is a new blog, please spread the word on Facebook, Twitter, or email the link to a friend or family member. Thanks for the support!

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