My Portfolio Allocation Plan

Last time, I talked a little bit about the different places we can place our investments and the merits of each account. Today I’ll talk about what I believe is the best way I can use them to help me start building up my wealth. 

RRSPs:

For my situation and I’m sure for many university students, RRSPs are not that practical since we barely make enough money to get a substantial amount back in the form of tax returns. The one thing that I feel that I’m really missing out on is that U.S. positions are not subjected to the 15% withholding tax that would be applied in other accounts. I want to have positions in the great companies like Coca-Cola, Procter & Gamble and of course McDonald’s but I guess I’ll wait until I can justify contributing to my RRSP. This will probably be a couple years from now, when I have a full time job and at that time you can bet that I’ll have U.S equities in my portfolio. I’m tempted to just buy U.S. equities right now for my TFSA since they seem to be cheap and there is more exposure to consumer goods, which would help with diversification, but I think that 15% withholding tax is too steep. Besides, there are still plenty of opportunities here north of the border.

TFSAs:

I personally love TFSAs. Before these accounts, people who didn’t earn a lot didn’t have a tax-sheltered account for their money to grow since contributing to RRSPs would lock that money up. I feel like it was designed specifically for me! Since it has the additional $5000 contribution room every year it gives me a nice goal to try and reach in terms of saving. I’m currently maxing out my TFSA every year and I plan to do it for as long as I can – even when it’s worth it to contribute to my RRSP. I feel that TFSA are more straightforward in terms of rules and I won’t have to guess about where I’ll stand in terms of tax brackets when I’m 65. Everybody should be using his or her TFSAs. They’re better than using a normal savings account in every aspect as long as you know all the rules.

Currently I have the majority of my TFSA in cash and some of it in some index mutual funds. I plan to do the December Shuffle and move the majority of my money over to a brokerage account to pick up some government bonds ETFs. Since the ETFs’ distributions are considered interest, putting them into my TFSA would be the best use of my tax shelter. Depending on which ones, REITs also sometimes distribute interest. Again I plan to have my positions in REITs placed in my TFSA to benefit from tax-free interest.

Unregistered Accounts:

I currently have many unregistered accounts. I have a high interest savings account, a couple GICs and an unregistered margin account. The margin account holds mostly dividend paying blue chips, which is okay because I can take advantage of Canadian dividend tax credit. I also have some REITs and a bond ETF but like I said before, I plan to move them to my TFSA by the start of next year to make my assets more tax-efficient. 

What do you think about the plan? Does it make sense or am I speaking crazy talk (as usual)?

-the Paperboy