How do I invest with a TFSA or an RRSP?

I just wrote an article about choosing between a TFSA and an RRSP, but what do you do after you've decided? Let me try to share what I would do. This is not investment advice, just sharing some perspective in case it helps you.

What can I do with an RRSP or TFSA?

My take is, TFSAs and RRSPs are buckets that can hold a variety of investments, not just one or two kinds. It's just a container, let me explain using examples.

A TFSA or RRSP can hold these popular investments:

• Stocks or ETFs
• Mutual Funds
• Savings accounts
• GICs (Fixed deposits)
• There are more, these are just the most common examples

Ok, then is one investment type better than another?

Kinda! A TFSA and RRSP are tax sheltering tools. There are more details on my prior post but here's a quick recap first:

• A TFSA
• Takes your money after you've paid your income taxes (e.g. taxes at payroll deductions) and invests that amount.
• This allows you to earn as much as you want after it and not pay any taxes on the earnings made by this investment.
• A RRSP
• Allows you to get back the taxes you had deducted when you got your paycheque, for the amount of money you invest into it.
• This allows you to invest more money upfront.
• However, this is a tax deferral tool, meaning you have to pay taxes at the time of withdrawing it at whatever your tax bracket is at that time.
• Usually that's lower when you retire
• But usually higher if you're still working since most people get raises and promotions as they years go by, a great problem to have.
• This is explained more, along with several examples in my prior post so I'd recommend reading it if you're still not sure.

Ok, so what do I do then?

Personally, I see these as powerful tools to reduce my tax bills.

• I'd use TFSAs and RRSPs for investments with higher earning potential.
• Since we usually pay taxes on interest and gains in our stocks. It's best to pick the highest earning investments and put them into the TFSA or RRSP.

What's do I mean?

• A savings account is reliable but often generates lower earnings than good & reliable stocks with a long term track record of success and reliability.
• I personally expect that these good stocks will earn a higher return rate over a 10+ year period.
• For these reasons, I mostly use my RRSPs and TFSA for:
• Super reliable stocks (think Canadian banks)
• And a bit of cash that earns interest. I use some ETFs that are principal protected and pay interest.

Are there any special things that differ between an RRSP and a TFSA?

Yes, beyond my previous note, from there are some minor differences between RRSPs and TFSAs from an investment perspective:

• RRSP are similar to an almost identical US investment retirement tool.
• So, while US stocks do usually have withholding taxes on any dividends they pay out.
• This similarity to a US retirement account, allows your stock broker not to deduct US withholding taxes for the govt. on any US stocks.
• You don't have to pay this later or anything. 
• The TFSA is an instrument unique to Canada
• So the US govt will want to have taxes withheld on any dividends your US stocks pay out.
• Note: This only applied to the dividend amounts itself. You won't have any taxes deducted just by selling the stock at a profit in both the TFSA and RRSP.
• This tells me that the RRSP is a great tool to hold dividend generating US stocks, but the TFSA is fine for non-dividend generating ones.
• I'd say this should not be the deciding factor in choosing between a TFSA and an RRSP. Please read my prior post for that.

This is all great, but how do I actually get started?

We've seen in the above points, I've personally leaned towards stock based investing. So how would we do this? It's easy!

You just need to open a brokerage account and there are a few almost free options!

Wealthsimple Trade

This is my favourite for someone just getting started.

• It's really easy to open compared to my other options below.
• These guys have a cool platform, it's slick and simple to use.
• Canadian stock trades are free!
• US stocks have a 1.5% currency conversion fee every time you buy and sell.
• You can pay ($10) to have a 'USD account'. Not worth it in my perspective since stocks are meant to be purchased and held for years in my philosophy (not traded).
• There are no account fees related to keeping minimums.

Open an account here: https://www.wealthsimple.com/invite 

• Please consider using my referral code to help me out: NKWQXW
• You too will get something, they keep changing it, but they give you $25 (at the moment of posting).

National Bank Direct Brokerage (NBDB)

This is my other favourite 'almost free' broker, here's are some points to consider:

• They don't charge for a US$ account, there's just a one time conversion fee they bake into their conversion rate when you swap CAD for USD every time you top up your US$ account with USD.
• Trades within the US account to US stocks are free.
• However, they are a bit old school and the opening process is more cumbersome than Wealthsimple (at least it was much more painful for me).
• I had to fills in several forms and mail them in (I did this in 2022, not in 1985, lol).
• They lost my paperwork and I had to resubmit it again.
• Almost everything like account linking to my current bank needs a form, at least they let me scan and send it.
• However once the painful account opening was done, I then find it to be an amazing account, mainly because there's just a one time conversion fee to US dollars to place money in the US$ account.
• Also, there are some fees to consider, the main one is the account maintenance fee:
• They charge $100 every year if your total assets in their accounts are below $20,000!
• That's a deal breaker if I were just getting started.

You can open your account on their site. I've linked it to their fees page so that you have a good idea of the costs: https://nbdb.ca/pricing.html

Note that there are others, I chose not to put them all in since I don't want to clutter the article with redundant tools.

If NBDB does not shout out 'yes' to you, keep it simple and start with a Wealthsimple account.

Now that I opened my account, what do I actually do with the funds?

This deserves it's own post, it's too complex to just go on in this thread, however here's my approach to picking stocks:

• In the last 10, 25, 50 or 100 years, how did a stock do?
• Stocks are a long term investment, am I ok to lock up my funds for a long period of time? (Think 10+ years!)
• Am I really, really, ok with this? There are moments where you could see 10%, 20% even 40% drop in your investments, but all this is not real till you sell it. Are you ok with it?
• If you've picked a good stock and can weather the storm, you should be fine (again, in 10+ years).

An example (and it's only that, not financial advice) is:

• I bought a bit of a few of the Canadian bank stocks. These stocks IMO have lasted decades and withstood years of recessions.
• Yes, they lost maybe 50% during the recession but they always came back up in the following years.
• Investing takes guts and will power, you need to be able to sleep at night.
• Another idea if you're not sure what to do is to buy an index fund.
• This is basically like buying a piece of all the top companies on the stock market. No thinking required! lol
• The point of this is that its very unlikely that all companies in Canada or US (or wherever) are going to all go bankrupt.
• If this actually happened, we'd all have way bigger problems! haha, think Mad Max.
• So it generally means, again over 10+ years, you are likely to only profit!
• Remember all your money need not be invested in stocks/index fund.
• You can choose to have a split, say 60/40 or 75/25 with stocks/index funds and cash like investments.

Cash like 'stocks' (ETFs)

I'd personally keep a percentage of my money in the TFSA and the RRSP in cash like ETFs. They are like stocks (they trade the same way).

Here are some ticker codes (stock symbols) for CA$:

• HISA
• CASH
• PSA
• NSAV

All these pay (at least at the time of posting) about 5% interest monthly as a dividend.

The ETF price keeps going up through the month and then drops giving people holding the ETF a dividend (in about 2 weeks). This is how it works, month after month.

Do I have a strategy to help me cope with the ups and downs?

Yes. I only have stocks/indexes invested with a percentage of my funds. The rest of my funds in the RRSP and TFSA are in various cash like ETFs seen above.

Some key things:

Diversify

• No one can tell the future, no one knows what will happen. So don't worry because of that, but do what you can to limit any downside.
• Do this by avoiding buying just a few stocks/index funds. Spread your funds across several since that limits the risk to one fund/company.
• Same applies to the Cash like ETFs, spread your 'cash like' percentage of your portfolio across these. That way if something were to happen to one ETF, at least you have the others...

My idea I use to see a 'positive situation' when stocks go down 😱

I am not crazy, lol, but when a stock goes down, to me, its like it's gone on sale!

A stock is a piece of a company, and as long as I am not gambling by buying risky/Yolo kind of companies, a piece of a reliable, decades long proven company is likely going to still be a good investment in 5 to 10 years.

So when it's price drops, it's a great time to buy the same company on sale! No one complains when a smartphone they wanted goes on sale, almost no one says 'there must be something wrong with it'. So think like that.

Here's the way I actually get this done.

• Have a fixed % at which you are willing to buy the dip.
• I wait for 10% or at least 5% drop of the last buy price I spent on the stock/Index fund ETF.
• Example if I buy Scotiabank (BNS) at $60, and I see it drop to $55. Then I buy a bit more.
• I don't buy just because I see it at $58, or $57, I wait till it's $55 in this example.
• I do this by selling off a little of my cash like ETFs
• And use these funds to buy more of the stock.

The purpose of this exercise is to turn a negative seeming situation into a positive one. Also, your cash like money is earning good interest as well.

I hope that was helpful!

My final thoughts are:

• Please only invest with funds you can afford to keep locked in for 10 or more years.
• Then once you invest, please don't check the app to see how it did daily, or frequently
• that never ever helps you! Just check once a year or something.
• Investments are long term, don't loose anything until you sell!
• Consider deleting the stock trading/finance apps from your phone if it bothers you, just reinstall it every year or whenever you need to re-invest more funds.
• Please do read up and follow the proper contribution guidelines for TFSAs and RRSPs, there are limits and penalties if you exceed them.

Good luck everyone.