It’s a bit late but I finally sat down and started to think about what I would like to accomplish for 2016.
I wrote a couple months ago I managed to max out my TFSA and RRSP, and now I need to figure out what to do next. At the time the decision was pretty clear – start working on my wife’s TFSA and RRSP accounts.
More TFSA Room
A big part of the monthly savings in the near future will be put towards the second TFSA account. Even though the TFSA contribution limit for 2016 was rolled back there is still about $40k of contribution room available from prior years (cumulative total).
I’m not sure if my investment approach for this account will change. I will probably continue to add dividend stocks and reinvest the dividends, but I may also start buying index funds while they’re low. The appeal of this strategy is that it would be more ‘hands off’ than the other investment accounts and I wouldn’t have to constantly reinvest the dividends received.
Lots of RRSP Contribution Room
As much TFSA contribution room as there is, it turns out there is also a significant amount of RRSP contribution room available as well.
Any RRSP contributions would likely follow a similar strategy as the other investment accounts, with more indexing and less individual stocks. I love dividends but I can also see the value of indexing – easy, diversified and cheap – ETFs are free to buy using Questrade. Buying units in a fund like iShares Core TSX Capped Composite Index (Symbol: XIC) means I’d get 95% coverage of the market a a low cost, and less maintenance because I wouldn’t have to constantly reinvest the dividends.
I’d also like to get some exposure to the US markets and although I do have a few dividend stocks I’d like to buy I don’t have enough US cash to make it happen and it isn’t a great time to convert, so I’m hoping to find a US index ETF that can give me the US exposure I need.
The other option I am considering is to use an RRSP loan to max out my wife’s RRSP. I would then use the tax refund to pay off the loan and focus on reaching the TFSA contribution limit after that. This strategy would probably give me the best bang for my buck – I could probably max out both accounts by year end and then start putting money on the mortgage principal. I recently renewed the mortgage at a low rate (1.90%) so it has less of a priority than the TFSA. Paying down debt is never a bad idea but in my case I would be better off to focus on earning tax-free investment income before paying down the mortgage.
An RRSP loan would be a big (first) step for me – I’ve never had any debt (aside from a mortgage) so I would want to make sure I could pay it off as soon as possible (within 1-3 months).
Conclusion: in 2016 I’ll be looking to max out the second TFSA and RRSP accounts, and then start putting money on the mortgage principal.
What do you think of my strategy? What would you do?