Me and my TFSA
Rick is a 31-year-old police officer in Toronto. He has spent the last two years getting his financial house in order by paying off $50,000 in debt (mostly student debt and a car loan). “I’m just left with a mortgage payment now,” says Rick. “So I have some money to contribute to a TFSA. I’m up to $23,000 which is great.”
In fact, Rick only contributed to his TFSA for the first time 18 months ago. “I have a pension at work so RRSPs don’t make sense for me,” says Rick. And for now, he’s making contributions ad hoc throughout the year whenever he has the money. “My wife and I just had a baby so that means RESP contributions will be starting soon,” says Rick, although his TFSA will still be a priority.
Rick’s TFSA portfolio is aggressive with 100% of his money in equity index funds from TD. His allocation is fixed at 40% U.S. equities, 30% Canadian equities and 30% international equities. “I take my defined benefit pension from work as my fixed income portion so I feel I can squeeze more growth from by TFSA,” says Rick.
Rick thanks portfolio manager Dan Bortolotti and his blog canadiancouchpotato.com for teaching him everything he knows about portfolio construction and keeping fees low. “Before I started educating myself on investing two years ago, it all seemed more complicated than it really is,” says Rick. “And it was surprising because when I went to the bank to ask investment questions, I found their knowledge on investing so limited that I had to actually teach them a thing or two. I found out pretty quickly that for banks, it’s all about whatever they can sell at the time. That’s really they’re focus.”
Given the simplicity of managing his TFSA—and the low fees he benefits from being a DIY investor—Rick plans to stick with his index fund strategy for the long-term. Rick’s main takeaways since becoming a DIY investor:
- First, realize the TFSA is, first and foremost, an investment account,
- and second, you can put a lot of different investment vehicles in it—index funds, stocks, ETFs—it’s all available to you.
- Finally, and most important, get over any anxiety you have about money and investing. “Honestly, it’s not as complicated as you think. With a little time and effort you can do a good job managing your money on your own.”
Great work, but consider one small tweak
“If it ain’t broke, don’t fix it”, says John DeGoey, portfolio manager, iA Securities in Toronto.” Rick is doing everything correctly; There is really no need for him to change his portfolio.
If he’d like to make a small tweak, then maybe the next $5,000 to $7,000 he has to invest could be allocated to Emerging Markets by adding units of the Sphere FTSE Emerging Markets Sustainable Yield Index (SHZ), suggests DeGoey. “This would give him a bit more diversification, resulting a more expected growth.” But until that new money comes available DeGoey says he wouldn’t change a thing.
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