# TFSA: bonds or "high risk" US stock ?



## patmanz (Jul 26, 2010)

Hello folks,

I have 10k unused room in my TFSA, currently cash in a TDWH trading accout.

I keep reading that the best place to put bonds are in the TFSA, but i since all gains are tax-free, isn't the TFSA the best place for riskier investments ? Many US stocks are still pretty low compared to their pre-recession value (ex: Alcoa). Considering a long time frame, it is pretty much assured that they will eventually get back near their original value...


----------



## Jungle (Feb 17, 2010)

One bad thing about the TFSA is that there is a withholding tax form US dividends. I believe you will never get it back. 

You can use TFSA to avoid capital gains. Next year you get another 5K room, so you can put fixed income in that, if needs be.

The reason why people use it for fixed income, is because fixed income is 100% taxed. Capital gains has a more favorable tax treatment.


----------



## HaroldCrump (Jun 10, 2009)

A couple of things are at play here:
the first decision is whether you buy bonds or not, and the second decision is where to put them.
The first answer depends on what else you have in your overall portfolio, all types of accounts included.
Do you have any bond components (individual or funds)?
Do you even _need_ any bonds given your risk tolerances, overall financial situation, sources of income during retirement, etc.
Also, as you know, this is not a good time to initiate any large position in bonds, except perhaps a short term bond fund.

Once you have decided that, again look towards the rest of your accounts and decide where best to put them.
Ideally within RRSP or TFSA.
Don't put US stocks in TFSA if you expect dividends from them.


----------



## Square Root (Jan 30, 2010)

patmanz said:


> Hello folks,
> 
> I have 10k unused room in my TFSA, currently cash in a TDWH trading accout.
> 
> I keep reading that the best place to put bonds are in the TFSA, but i since all gains are tax-free, isn't the TFSA the best place for riskier investments ? Many US stocks are still pretty low compared to their pre-recession value (ex: Alcoa). Considering a long time frame, it is pretty much assured that they will eventually get back near their original value...


I think you should keep relatively low risk high tax interest paying investments in your TSFA. Cap gains and divs already taxed at low rates.


----------



## patmanz (Jul 26, 2010)

HaroldCrump said:


> A couple of things are at play here:
> the first decision is whether you buy bonds or not, and the second decision is where to put them.
> The first answer depends on what else you have in your overall portfolio, all types of accounts included.


I have problem with the 'where' part 



HaroldCrump said:


> Do you have any bond components (individual or funds)?


I am still at the planning stage, most of my $$$ are in a non-registered account.

I plan to go the ETF index way in the non-registered account, no idea what to do with the TFSA and RRSP, the amount i have in theses account are minimal when compared to the non-reg 



HaroldCrump said:


> Do you even _need_ any bonds given your risk tolerances, overall financial situation, sources of income during retirement, etc.


My target is a 60/40 equities/fixed income allocation



HaroldCrump said:


> Also, as you know, this is not a good time to initiate any large position in bonds, except perhaps a short term bond fund.


I was planning to use XBB or maybe XSB in my TFSA



HaroldCrump said:


> Once you have decided that, again look towards the rest of your accounts and decide where best to put them.
> Ideally within RRSP or TFSA.
> Don't put US stocks in TFSA if you expect dividends from them.


I have a very good idea of what my target portfolio is (60/40 split in ETF), the problem is how to manage it in different account, my TFSA and RRSP are not even 10% of my non-reg account and i am not sure what is the best investment to put in them.

I could use these account for speculative investment but i am not sure about that idea...


----------



## HaroldCrump (Jun 10, 2009)

Based on this information, I'd say hold the bonds in the TFSA.


----------



## patmanz (Jul 26, 2010)

HaroldCrump said:


> Based on this information, I'd say hold the bonds in the TFSA.


My rationale too

The big picture could look like this:

TFSA: 100% bonds (XBB or XSB iShares ETF)
RRSP: Blue chips US stocks or US ETF
Non-Reg: your standard couch potatoes portfolio (60/40 split or so, Vanguard/iShares ETF)

Anything wrong ?

Most of the article's i find on asset allocation are brief and don't go into much details. The fact that my non-reg account is much more important than my tfsa/rrsp also add complexity.


----------



## HaroldCrump (Jun 10, 2009)

patmanz said:


> My rationale too
> TFSA: 100% bonds (XBB or XSB iShares ETF)
> RRSP: Blue chips US stocks or US ETF
> Non-Reg: your standard couch potatoes portfolio (60/40 split or so, Vanguard/iShares ETF)
> ...


Nothing wrong, but I'd suggest include the bonds held inside the TFSA as part of the 60/40 allocation.
If you don't, you will have higher than 40% bond allocation overall and yet pay more taxes on the interest income in the non-reg account.
The withdrawability of the income is the same between TFSA and non-reg.


----------



## patmanz (Jul 26, 2010)

HaroldCrump said:


> Nothing wrong, but I'd suggest include the bonds held inside the TFSA as part of the 60/40 allocation.
> If you don't, you will have higher than 40% bond allocation overall and yet pay more taxes on the interest income in the non-reg account.
> The withdrawability of the income is the same between TFSA and non-reg.


Make sense !

I know that i am getting into details and i not sure this forum is the best place to ask this question but i am wondering if there any major caveats having the non-registered belong to a company registered to my name ? This $$$ is the profit generated by my company. Anything to be aware of, tax-wise or others ?

I want to thanks everyone for helping and especially you HaroldCrump, very appreciated


----------



## Jungle (Feb 17, 2010)

Generally, you want to MAX your registered accounts first. Keep your fixed income in your TFSA, US and international Equity in RRSP, Canadain equity and divided in non-reg. 

This is a basic guideline for long term.


----------



## Young&Ambitious (Aug 11, 2010)

Assumming your business is a CCPC earning Active Business Income I would not recommend holding investments within the business.


----------



## patmanz (Jul 26, 2010)

Young&Ambitious said:


> Assumming your business is a CCPC earning Active Business Income I would not recommend holding investments within the business.


In fact i am currently pondering the idea of transferring all assets currently in my active business account to a new holding company registered to my name using dividends.

However, my accountant told me that since i am the only shareholder of the active company, that using an holding company was adding complexity for not much.

Any opinion on this Young&Ambitious (or others!) ?


----------



## 412driver (Apr 30, 2010)

Bonds (like GIC's) are highly taxed therefore they should go into your RRSP's

Put Equities into the TFSA's

I also have a non-registered brokerage account (Q-Trade) that holds my dividend paying preferred shares that come with a tax credit.

Hope that helps you.


----------

