Before I get started, just a heads up that today is the income tax deadline. It’s not too late to file, see some filing options and tax tips here.
Within my financial freedom updates, I itemize our family income producing assets which include my wife’s investments. A reader emailed me asking about how Mrs. FT’s investments are structured, and since I’ve disclosed just about everything else about our finances, I thought I would share more detail about these accounts.
Which Discount Brokerages?
To begin, my wife has most of her accounts with Questrade (a favorite among MDJ readers). We opened an RRSP with Questrade when they were still very new and we have been very pleased with the low fees and ease of use (you can see other discount brokers here).
When we decided to take the commuted value of her pension, we transferred the lump sum into a LIRA with, you guessed it, Questrade. We also recently opened a non-registered account to build a dividend portfolio, we decided to keep it simple and keep her accounts together with Questrade.
Investment Strategy and Holdings
To keep things efficient, most of Mrs. FT’s accounts are globally indexed with the exception of her Canadian holdings. I figured that if I were to pass away, it would be fairly intuitive to take over the accounts. The issue comes with my side of the holdings which is a bit more complex. But essentially, with the exception of my fun trading account, our investments follow the same buy and hold forever philosophy.
For tax efficiency, we follow the portfolio allocation philosophy which I wrote about recently. Essentially, we max out our tax-sheltered accounts first. If they get filled up, Canadian holdings can overflow into a non-registered account.
To achieve a tax-efficient, low fee, and long-term globally diversified portfolio, here are some specifics:
This account is indexed with international holdings and a small portion of bonds. For the international holdings, we are using the iShares ETF XAW (A mix of US/international/emerging markets). I’ve been buying XAW in little pieces over time as Questrade allows for commission-free buying of ETFs. Here are more examples of indexed ETF portfolios.
This account is relatively new and was a result of taking the commuted value of her defined benefit pension plan. In this account, I also wanted international exposure like XAW, but to further optimize fees, and to take advantage of Questrades free ETF trading.
I decided to break up XAW and instead buy: iShares XUU (US index), iShares XEF (international index), and iShares XEC (emerging markets). As with the RRSP, I’m buying the ETFs in pieces with the goal of being 100% invested (soon). We’ve also added a Canadian Dividend ETF which represents about 10% of this account.
As previously mentioned, the non-registered account with Questrade is fairly new. Mrs. FT had a bunch of cash sitting around collecting dust so we thought it might be a good idea to invest it in Canadian dividend stocks to 1) build upon our passive income stream; and, 2) take advantage of low taxation within her tax bracket (essentially 0% tax on dividends).
Within this account, we’re focused on blue-chip Canadian dividend stocks that have a strong dividend history and higher yields. Here is a post that encapsulates a number of her holdings (ie. BCE, T, CM, RY, ENB, TRP, EMA, SLF, GWO, CNR).
A TFSA is a great place to hold REITs and other high yielding companies. You could also hold index ETFs in here (avoid US index ETFs due to withholding taxes). For Mrs. FT, this account holds REITs, high yielding dividend stocks, and a high yielding Canadian dividend ETF.
How Much Investment Income does Mrs. FT Generate?
With the focus on generating passive income towards financial freedom, how much does Mrs. FT’s portfolio contribute? While index ETFs don’t generally distribute huge dividends, they still have an impact.
This is a table from a recent Financial Freedom update.
March 2018 Dividend Income Update
Account Dividends/year Yield SM Portfolio $6,850 3.86% TFSA 1 $3,000 4.93% TFSA 2 $3,200 5.15% Non-Registered $2,300 5.15% Corporate Portfolio $14,000 3.73% RRSP 1 $6,400 2.94% RRSP 2 $1,800 2.43%
- Total Invested: $1,011,819
- Total Yield: 3.71%
- Total Dividends: $37,550/year (+12.44%)
In terms of personal assets, Mrs. FT owns 50% of the Smith Manoeuvre portfolio, 100% of TFSA 2, 100% of the non-registered account, and 100% of RRSP 2. So as of right now, it’s a joint effort with her accounts contributing about the same as mine.
There you have it, Mrs. FT’s portfolio is globally diversified with index ETFs with Canadian market covered by blue-chip dividend stocks/ETFs. We will continue adding to these portfolios with new savings and edging towards our financial freedom goal of $60k per year.