# What to do with TFSA?



## Fraser19 (Aug 23, 2013)

Hey guys,

I am looking for some advise as to what I should do with my TFSA.
So I have just recently started it and about 80% of my money is in the TD Canadian equity index fund as I am just starting out. I also have some money into a few stocks that are dripping, but this is a very small amount.

So I am going to be picking up the TD international equity index as well to further diversify. But I am wondering if those two funds are really enough diversification. I have US holdings in my RRSP and am not going to add them to my TFSA due to the withholding tax. I am wondering what do you guys currently thinking about the international equity index? https://www.tdassetmanagement.com/fundDetails.form?fundId=4877&prodGroupId=1&lang=en&site=TDCT

I was also wondering about the https://www.tdassetmanagement.com/fundDetails.form?fundId=3267&prodGroupId=1&lang=en&site=TDCT japan fund as I have never really been able to find what anyone thinks of it. I am new too these index funds and do not totally understand them yet. So I am hoping for some advise on if just Canadian and international equity is enough or should I also take a small position in the japan index?

Also I do have the Index bond fund but that is about 5% of my TFSA as I am 25 and don't feel an overwhelming need for them. I am also wondering if it is even worthwhile for me to have bonds at this age?

Sorry if this does not totally make sense.


----------



## Spudd (Oct 11, 2011)

Japan is part of international so there's no real reason to also buy Japan (unless you have some sort of knowledge that Japan's stock market is about to take off, which probably you don't). I think you'll be fine with just the international. 

You should really sit down and come up with an overall asset allocation you want to follow, and then just buy according to the rules you set out for yourself. For example, a classic couch potato might be 25/25/25/25 bonds/canadian/us/international.


----------



## Fraser19 (Aug 23, 2013)

Spudd said:


> Japan is part of international so there's no real reason to also buy Japan (unless you have some sort of knowledge that Japan's stock market is about to take off, which probably you don't). I think you'll be fine with just the international.
> 
> You should really sit down and come up with an overall asset allocation you want to follow, and then just buy according to the rules you set out for yourself. For example, a classic couch potato might be 25/25/25/25 bonds/canadian/us/international.


My RRSP is classic couch potato.

No US in the tax free, I was thinking the TFSA could be 50/cdn equity/40int equity and 10 bonds.

Another question, Is there really a point in buying into bonds at this time. Interest rates are low and seems like there is a lot of speculation of rates rising over the next few years. Wouldn't this be valid reason to not become involved with bonds?


----------



## AltaRed (Jun 8, 2009)

Fraser19 said:


> Another question, Is there really a point in buying into bonds at this time. Interest rates are low and seems like there is a lot of speculation of rates rising over the next few years. Wouldn't this be valid reason to not become involved with bonds?


It is not a question of whether there is a point in buying bonds at this time. The question is more one of whether you should have any fixed income in a portfolio if you are young and have other outstanding debt such as a mortgage. The logical answer might be no, especially you have an emergency fund of 3-6 months expenses set aside. 

BUT one of the points of a FI allocation is to temper the volatility of an all equity portfolio. Will you have the stomach to ride the roller coaster in an equity meltdown aka 2008/09 of circa 40%? Or will you panic and sell low? Studies show that most people believe their risk tolerance is higher than it really is -- when the real thing is happening, it becomes personal, not theoretical (or happening to someone else). Only you can decide if you can stomach the volatility of an all equity portfolio.


----------



## Spudd (Oct 11, 2011)

Fraser19 said:


> My RRSP is classic couch potato.
> 
> No US in the tax free, I was thinking the TFSA could be 50/cdn equity/40int equity and 10 bonds.


What I meant was, your overall portfolio should have a certain asset allocation, whatever that may be. Once you know what asset allocation you want, then you can decide where it is best to hold the various assets.


----------



## Butters (Apr 20, 2012)

How long will this money be invested?
Will you take it out to purchase a house? car?


Dave Rasmey the king of debt, hates bonds... especially at these rates

Bonds:
Dave does not own any bonds and does not suggest them as part of your investment plan. People mistakenly believe bonds are "safe" investments that have slightly lower rates of return than equities. Single bonds can actually be very volatile and go down significantly in value. Bond mutual funds can at least be tracked for historical returns but do not offer the returns equity mutual funds do.


----------



## Eder (Feb 16, 2011)

I think if you are younger 100% small cap equities is a good spot for TSFA.


----------



## My Own Advisor (Sep 24, 2012)

Further to AR's point, you need to figure out if you want/need bonds, given your risk tolerance.

If you are young, have a pension at work, have an emergency fund, I say NO because you've covered some risks.

I see bonds as parachutes for a portfolio, they ease your mind when the market is crashing. If you can stomach 30-40% losses, and have the guts to buy when the market is crashing like this, you probably don't need bonds.


----------



## Cal (Jun 17, 2009)

Fraser19 said:


> My RRSP is classic couch potato.


Based on the info given, I would stick to this approach. Until you get a greater grasp on how you would like your portfolio structured. This is a good start.


----------



## Westerncanada (Nov 11, 2013)

Cal said:


> Based on the info given, I would stick to this approach. Until you get a greater grasp on how you would like your portfolio structured. This is a good start.


I would agree.. good foundation. I have discussed before but again a simply strategy based on (what I am assuming your investment level is) your level is a better approach so you can focus on bringing in more income in other areas of your life or accelerating your career etc.


----------



## cannew (Jun 19, 2011)

If you don't plan to withdraw the funds, but hold them as a long term investment, than invest in just solid companies with a long history of paying and growing their dividend. Buy the shares when reasonably priced, reinvest the dividends and watch it grow steadily and compound over the years.


----------



## Fraser19 (Aug 23, 2013)

cannew said:


> If you don't plan to withdraw the funds, but hold them as a long term investment, than invest in just solid companies with a long history of paying and growing their dividend. Buy the shares when reasonably priced, reinvest the dividends and watch it grow steadily and compound over the years.


Yes it is all long term focused. I have no plans to cash any of it out for several decades. All my my purchases are cash and I never spend more than I make in a month, unless some unforeseeable tragedy occurs. 
My long term plan is to mostly stock up on index funds and when whenever I see a good dividend stock at a reasonable price, I will pick that up too.

I would like my TFSA to be a major fund for my retirement, as I have 40 years of compounding on my side. 

There is a great appeal in 40 years of tax free compounded income.


----------



## heyjude (May 16, 2009)

Fraser19 said:


> Yes it is all long term focused. I have no plans to cash any of it out for several decades. All my my purchases are cash and I never spend more than I make in a month, unless some unforeseeable tragedy occurs.
> My long term plan is to mostly stock up on index funds and when whenever I see a good dividend stock at a reasonable price, I will pick that up too.
> 
> I would like my TFSA to be a major fund for my retirement, as I have 40 years of compounding on my side.
> ...


It helps to know this. Good approach by the way. I wish I had 40 years of TFSA compounding ahead of me! In your situation I would first define my desired asset allocation, then put any fixed income into my RRSP (because the taxation on income is highest and you can defer it for decades) and then put equities into my TFSA, where it can grow (albeit with volatility) over the years, tax free. If the amounts don't quite fit, adjust as necessary, but FI=RRSP and E=TFSA would be my recommendation.


----------



## My Own Advisor (Sep 24, 2012)

When I had some fixed-income in the form of bond ETFs, that is where I kept them, inside the RRSP. I mostly keep U.S. stocks and ETFs inside RRSP now.

I have and will continue to use the TFSA for Canadian equity (dividend stocks and ETFs).


----------



## Fraser19 (Aug 23, 2013)

heyjude said:


> It helps to know this. Good approach by the way. I wish I had 40 years of TFSA compounding ahead of me! In your situation I would first define my desired asset allocation, then put any fixed income into my RRSP (because the taxation on income is highest and you can defer it for decades) and then put equities into my TFSA, where it can grow (albeit with volatility) over the years, tax free. If the amounts don't quite fit, adjust as necessary, but FI=RRSP and E=TFSA would be my recommendation.


I am hoping to keep my fixed income somewhat low. Hopefully next year I will be starting with the Alberta Health Services, I feel the pension should be able to cover my retirement needs for fixed income. Most of the bonds I have and will buy are just a way of storing money with some return until a dip in the market, which I will then hopefully be able to nab some other investments at a good price.

I would like to have enough dividends coming in that I don't really need to sell any stock, which shouldn't be to challenging with a gov pension.


----------

