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Thursday, March 23, 2017

2015 TFSA Update

Posted by Tim Stobbs on March 12, 2015

As I previously noted in my last net worth update we already finished maxing out our TFSA accounts for the year.  So with that in mind my wife and I went shopping for some additional stocks.

Our strategy for our TFSA accounts is fairly straight forward.  We buy individual stocks that pay a dividend and mirror our existing bills.  So that means we tend to look at banks, power companies, telecommunications, real estate trusts….you get the idea.

We also have a few other ‘rules’ that we try to follow.  These include we also try to buy stocks with a fairly good yield, so while this doesn’t result in any firm minimum number or maximum we do try to aim for the accounts combined having about a 5% yield based on current value.  The other ‘rule’ we try to meet is to have about two companies per sector and try to not have too much dividend income from any one company.  We don’t keep a firm cap or anything, but we try not to have more than $500/year in dividends for a starting position in a given stock.  If the dividend growth of the stock pushing it higher than that I tend to ignore that.

Our current holdings are (by stock ticker symbol):

  • BMO
  • RY
  • EIT.UN
  • D.UN
  • REI.UN
  • NPI
  • AQN
  • BCE
  • RCI.B
  • CSW.B

We recently increased our shares in RY and started a position in RCI.B. That consumed the majority of our available cash so I doubt we will be buying much more for a while until our cash position builds up again.   We don’t bother with any DRIPs for these accounts.

Overall we are hitting the majority of our objectives with these accounts.  Our current combined yield is $4973/year on $100,270 in account value, which puts us just under our 5% target (yes I’m acutely aware our actual yield on contributions to these accounts is much higher).  The longer term plan is to get the yield up to $6000/year by the time I retire from my day job, which should be doable in three more years.  That way we can only draw out the dividends from these accounts and never touch the principle.

Well at least that is the plan…long term I suppose when we adjust positions over the years we might end with a small amount of principle getting paid out.  I intend to just take the cash out periodically rather than a complicated tracking spreadsheet. The other longer term adjustment would be in our retirement years strip out our RRSP and taxable accounts and move the money to the TFSA over the years to reduce our tax owing in the long run.

Of course these are only ideas for the long term.  I still need to sit down and plan out in more detail how I will switch from the contribution phase to the withdrawal phase.  After all getting the money invested is one thing, living off the investments gains is entirely another beast.

Any questions or ideas of companies for me to consider?

Comments

8 Responses to “2015 TFSA Update”
  1. Martin says:

    Hi Tim,

    Very informative post. I’ll be curious to learn more on your withdrawal strategy, as I am still unsure how I will optimally handle that aspect in due time (I’ve got many years to go before I retire to think about this though).

    Regarding holding stocks vs. ETFs, did you choose to hold individual stocks in your TFSA and ETFs in your RRSP and margin accounts for a specific reason?

    Also, regarding DRIPs, did you go from DRIPs to just accumulating dividends as you inched closer to retirement? Or did you never choose to DRIP from the get-go?

    Thanks,

    Martin

  2. Tim Stobbs says:

    @Martin – I was actually looking into ideas for a withdrawal strategy and was shocked by the lack of information on the topic. I’ll put something together in the future here on what I think might work.

    Yes, I did plan the stocks in the TFSA for a reason…in the event we had a suddenly huge return for a given stock I wanted to be able to avoid the tax bill. In an RRSP, I would only delay it and then it would be at my marginal rate. So we decided to put the stocks either in a taxable account or TFSA.

    We never had DRIPs in the TFSA accounts. Our saving window was fairly small so I decided we would be better off just collecting the cash and putting that into other stock purchases. We focused on expanding the number of companies we owned at the price of a larger position in the ones we already had. If you had a bigger window to do it DRIP would be useful.

    Tim

  3. Terry Falk says:

    Iam just getting started in investing for the long haul and have a TFSA and RRSP with Royal Bank. What discount broker is the best, which one do you use and why? Or should I just stay with Royal Bank Direct Investing to keep everything in one place? Thank You.

    Terry

  4. Peter says:

    I assume that you put foriegn stocks and fixed income and cnd stocks in your TFSA. The traditional strategy (which I think is now misguided and outdated) was to hold Canadian stocks in taxable accounts for the dividend tax treatment. Use TFSA for fixed income – but at the current rates you are protecting very little interest income. THe only part of your strategy that limited you is you cannot claim capital losses but if you are holding forever that does not matter.

    One question, with a potential 50-60 year retirement even the solid core blue chip stocks you pick could hit hard times meaning that you are relying on your ability to pick and hold the right stocks. Have you considered dividend ETFs instead?

  5. Peter says:

    Typo! My first line above should have read foreign and fixed income in RRSP, Canadian in TFSA.

  6. Heather says:

    Ineligible dividends earned in your TFSA will be taxed (withholding), and you won’t be able to get that back. You also miss out on the preferred tax treatment of eligible dividends. I try to keep my dividend paying stocks in my taxable accounts, and my other stocks in my TFSA for that reason. I see the TFSA as a good place for riskier investments that might have a big upside.

  7. Canuckguy says:

    Tim, I see two of the stocks you have(BMO&BCE) I have as well in our TFSA’s. However I have the bad luck of poor timing buying BMO at $82. Bummer. I did buy BCE at 45.25 back June 2013 and if I had any brains, I would have sold at the recent high when it exceeded $59 for a very short while. Then I could have increased the number of shares with the same money from the sale. But alas alack, my crystal ball was cracked. BTW, I am very impressed of the value of your TFSA’s. Good going!

  8. beth says:

    I just bought some more shares of the ETF VDY this morning. It is a Vanguard high dividend fund.

    Because I am in my early 50s and nearer the withdraw phase than you I am moving away from individual stocks and staying with ETFs.

    I am 6 to 8 years away from retirement and this year I will be concentrating on investing in ETFs but after this year I will start adding CDs as a safety net.

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