Friday, April 30, 2010

Where to Hold What

It makes my blood boil whenever I see someone holding the wrong kind of instrument for the account type.
As Canadian Investors the government gives us three types of investment accounts to stash away our money.

The RRSP, The TSFA, and the Non Registered Account.

In this post I would like to give my point of view on which type of investment is best suited for each account. I'm not going to discuss which account type is better. I personally Max both my TSFA and RRSP on the first trading day of the year. so my opinon on RRSP and TSFA max them both asap all the time.

- This is the only place to hold bonds. (if you are going to be holding bonds at all) 100% of your bonds should go into your RRSP.
- REIT's
- Income Trusts
- International dividend paying corporations ( not canadian eligible dividend paying corporations)

- no bonds, okay you can hold a Junk bond ETF, the point is not to be conservative. put investment grade bonds in your RRSP.
- REIT's
- Income Trusts

Non Registered Accounts:
- Preferred shares paying eligible dividends.
- Non dividend paying corporations where your income will be comming from capital gains.
- Stock options you intend to generate capital gains with.
- Never ever ever hold bonds in here.

In general you want your RRSP to be more conservative than your TSFA. This is because more risk in the TSFA will likely generate higher tax free earnings. You can manage your overall risk by lowering the risk in the RRSP. Thats why I think its okay to hold a Junk bond ETF in a TSFA, because it will likely pay more than a government of canada bond and so you will likely pay less tax.

As for the Non Registered Account,  This is where you want to realize your capital gains, since they are taxed most favourably and then earn your eligible dividends. do not hold bonds in here you might as well fill in box 465 to donate your tax refund to the Ontario Opportunities fund.

1 comment:

  1. Great post on the basics. I'm curious what your thoughts are on personal holding companies, how do they fit into this picture?