TFSA Contribution Room Increases to $10,000

In case you’ve been living under a rock for the past few weeks, the federal government recently increased the annual Tax Free Savings Account contribution room to a hefty $10,000…(If you’re not sure what a Tax Free Savings Account is, here is some basic information for you to get started).

Yup.  That’s $4500 annually more than the $5500 before the big announcement.

When I heard the news, I was quite excited for this increased contribution room and contributed an additional $4500 to my Tax Free Savings Account (as known as my Tax Free Trading Account) right away.  Then I panicked for a little bit because I was worried that I read it wrong somewhere and should not be contributing to the account until the law passed.  However, I was reassured that this was not the case, according to the Financial Post.  The additional contribution room is in effect retroactively since January 1, 2015.

Thank goodness for that, because I do not want to face the over contribution penalty again (well, I didn’t end up having to pay the over contribution penalty, but it was a good lesson to not over contribute!!).

The TFSA Got a Makeover!

I’m a big fan of analogies, and one way that helped me understand the difference between a TFSA and an RRSP is that they are like siblings- check out my old post on the TFSA and RRSP Head to Head Comparison.  Opposite siblings.  With the RRSP, you save with pre-tax income but you end up getting taxed later in life when you withdraw the money.  With the TFSA, you contribute with after-tax income and you don’t end up getting taxed when you withdraw the money.

TFSA Contribution Room Increases to $10,000Well, with the recent increase to $10,000 contribution from from the initial $5000 contribution room, then the $5500 contribution room, the TFSA sibling (previously unpopular, kind of neglected, mis-used because it is misnamed and most people put their money in a High Interest Savings Account earning less than inflation) got a HUGE makeover. Continue Reading

Mailbag – How do I Diversify and Allocate Assets Without Tearing My Hair Out?

We started our mailbag segment last week and are hopeful it will continue to pay dividends (and capital gains for that matter).  Today we’ll take a look at a follow up question from the same reader (Rachel) as last week:

I am finding myself a little confused over concepts like ‘asset allocation’ and ‘diversification’ when it comes to ETFs, and I was wondering if you had any posts or podcasts about that area. Does one need to diversify with ETFs? Doesn’t their span of content take care of that for you? I also find asset allocation tricky to wrap my head around because our assets are spread so thinly when we use them. If our assets are tied up in stocks, sure we want to allocate them well, but do we worry about asset allocation as much with ETFs?

And lastly, are there ETFs for the asset class of ‘Cash & Equivalents’? I assume yes, but if we passive investors are doing a hands off, long-term thing, are C & E’s even worth going for? They seem like a really unappealing group to me. 

Hey Rachel,

It’s best to think of asset allocation as the big picture and diversification with each asset class as the smaller details.  If you think of your entire investing portfolio as a pie chart (original I know) asset allocation is how big a slice each type of asset will take up.  Some of the pie will be Canadian stocks, some will be USA stocks, maybe a slice will be international stocks, and a slice will be bonds or other low-risk investments.  How big each of these slices are is basically the concept of asset allocation.  Most people would say that as you get older you should have a bigger and bigger slice (or part of your portfolio) in less-risky assets such as bonds.

How do I Diversify and Allocate AssetsAlso, while I’m not a proponent of these asset classes, I should mention that some people would recommend gold & precious metals, real estate, commodities, and few other types of asset classes that could have a spot in your portfolio.  If you’re just starting out though I would try to keep things as simple as possible and ignore those asset classes until you’ve done some research and feel comfortable with them. Continue Reading

May 2015 Networth Update 363202 (+1.1%)

Slow and steady wins the internal race, right?  Thankfully my ZPR shares aren’t hemorrhaging as badly compared to earlier in the month (I was down 2300 at one point, now just down 800 in unrealized losses).  I was quite excited about the increase in TFSA contribution room and of course I funneled the $4500 money into my TFSA very soon after the announcement.  I didn’t do anything this month in terms of buying or selling shares but I am thinking about buying some more bank shares (perhaps not more BMO.TO likely something else) or adding to my Fortis shares.

One major purchase was using some of my Aeroplan miles to travel hack my way to Asia next month.

As some of you following may know, my goal is to have a net worth of $385,000 by 2016 or $400,000 including my pension.  I am just over $400K net worth with my pension contributions and and have under $22,000 to go if I do not include my pension.

Okay, so here’s the breakdown for May 2015 (+3900, +1.1%)

ASSETS:

CASH: $25,900 (+1.2%)

Net Worth Update

  • I’m going to try and save up about 6 months living expenses in my emergency fund, and then funnel the rest into my mortgage or investing
  • I added up my chequing and savings accounts (High Interest Savings Account). I automatically deduct money from my chequing account and have it siphoned to the HISA account (paying yourself first)

Non-Registered: $95,800 (-3%)

  • I moved some money from my non-registered account to fuel TFSA
  • These are stocks that capture the “moment in time”, including unrealized gains or losses in my BMO Investorline and Questrade accounts. Continue Reading

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