Non-registered investment account advice sought

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Rhinox87
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Non-registered investment account advice sought

Post by Rhinox87 »

Hi,

I'm in my early 30's and married. Both wife and I work in healthcare and are entitled to DB pensions. We will be in position to max our TFSA' as well as the RRSP accounts early next year. We own a home and pay >100% of required payments to pay off the mortgage early.

Now that our registered accounts are nearly maxed out, I'm curious as to what investments would be the best for a non-registered account. We could simply do a CCP but I wonder if a dividend strategy should be considered to minimize taxes. My current marginal tax rate is 41% and the projected DB payout at 58 (my factor 85 age) will be a marginal tax rate of 36%, not considering any other income source.

Alternatively, should other investments outside of stocks/bonds be considered?

Any advice is appreciated.
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AltaRed
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Re: Non-registered investment account advice sought

Post by AltaRed »

I wouldn't dismiss a CCP portfolio outright if your time is better invested in your careers and social relationships than spending it on stock picking.

Howeer, if you wish to consider a DIY stock picking portfolio for your non-reg account, you may wish focus on Total Return as a key metric with dividend yield a secondary factor during the accumulation phase of your investment horizon. Depending on tax bracket (which you allude to as 41% currently and an estimated* 36% upon retirement, total return performance will grow the investments the most, while deferring tax to the distant future (via capital gain crystallization) will be more tax efficient than dividend income, even with the dividend tax credit.

I've never been a believer in alternative investments....so no recommendations from me.

* If you build a substantial investment portfolio over the next 20-30 years which seems likely, I would be willing to bet your MTR in retirment will be as high, or higher, than your current 41%.
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Rhinox87
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Re: Non-registered investment account advice sought

Post by Rhinox87 »

Thank you for the reply.

I employ total return strategy in our registered accounts and it has done fairly well.

Is there a way to defer all capital gains during the accumulation phase? I suppose new money going into the non-registered account can be used for re-balancing purposes such that no security needs to be sold. Are there any products that convert dividends into capital gains for the accumulation phase?
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kcowan
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Re: Non-registered investment account advice sought

Post by kcowan »

Any of the FANG stocks will create more returns from stock price appreciation than from dividends.
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Rhinox87
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Re: Non-registered investment account advice sought

Post by Rhinox87 »

I'm unsure if investing in FANG stocks for couple decades is a great strategy. I would like some diversification. Are there any tax efficient funds/ETF's out there that can be used?
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AltaRed
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Re: Non-registered investment account advice sought

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Rhinox87 wrote: 06 Nov 2017 19:25 I'm unsure if investing in FANG stocks for couple decades is a great strategy. I would like some diversification. Are there any tax efficient funds/ETF's out there that can be used?
I think Keith was just using FANG stocks as an example where stocks with more of their total return in capital appreciation than dividend appreciation are far more tax efficient in the long term than high(er) yield dividend stocks. It is simply a matter of math. IOW, pick the stock for its total return rather than its dividend yield....which is what I said in an earlier post to your comment.
but I wonder if a dividend strategy should be considered to minimize taxes
.

Added: At high(er) incomes that might be the case when you retire, the MTR on eligible dividends may be higher than that on capital gains. Of course, all that could change with a swipe of the Finance Minister's pen in any annual federal budget. In BC, once one has crossed about $110k of taxable income, the eligible dividend tax rate exceeds that of capital gains. http://www.taxtips.ca/taxrates/bc.htm
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Re: Non-registered investment account advice sought

Post by gsp_ »

Rhinox87 wrote: 06 Nov 2017 19:25Are there any tax efficient funds/ETF's out there that can be used?
Horizon has a suite of swap based index ETFs that don’t distribute any income, capitalizing it. You can search here for previous discussions by using the terms "swap" "HXT" "HXS" and “HBB”. There are several others, including a recently released EAFE fund, but those three have generated discussions here.
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Re: Non-registered investment account advice sought

Post by Rhinox87 »

Thank you AltaRed, Keith and gsp_. Appreciate the helpful advice. I will explore total return strategy and implementation ideas such as the use of swap based ETFs.
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