Investing Plan 2014

Retirement savings has taken a bit of a back seat this year due to the fact that I'm in the middle of my Masters and my income has dropped. None-the-less I had a nice little sum $6,443.96 that I had saved up in the previous year sitting in my savings account ear marked for retirement.

My knee jerk reaction was to dump it into my RRSP (which has a whole bunch of room in it now that I no longer have a pension) and celebrate my tax return. But, after some wise words from my father, I got out a tax calculator and ran the numbers. (By the way I often use this one.)

As summarized in the table below, if I wait until 2015 when my income will return to $70,000 I'll be in the 31% tax bracket and will see a tax return of $3,426.50. On the other hand if I contribute this year with a $42,000 income I'll be in the 24% tax bracket and I'll see a return of $2,656.50. In other words, waiting a year to fill up my RRSP I'll see an extra $770 on my tax return.

Taxable income	$70,000.00	$42,000.00
Taxes paid	$14,924.00	$6,339.00
Marginal Tax Rate	31.15%	24.15%
RRSP contribution	$11,000.00	$11,000.00
Tax Return	$3,426.50	$2,656.50

In the mean time my $6,443.96 of retirement savings have been moved to my TFSA and invested. The breakdown is as follows - 55% in a Canadian Stock Index, 15% in a US Stock Index, and 30% in an International Stock Index. (The International Stock Index doesn't include US companies.) I've left bonds out of the equation this go around because my TFSA also holds the money I've saved for a car, which is invested in a Canadian Bond Index and the money I've saved to make extra payments against my mortgage which is sitting in a high interest savings account. As a result the total risk for my TFSA is only moderate. 

Investment Proportions

I've finally done it.  All the hemming and hawing is done and I've come up with a plan for my retirement portfolio.  It stands as follows:

25% - Canadian Bond Index Fund
10% - US Stock Index Fund
20% - International Stock Index Fund
45% - Canadian Stock Index Fund

Which means I have 30% of my portfolio in foreign markets, 75% in Stocks and 25% in Bonds.  I am planning on keeping this ratio until at least halfway to retirement at which point I will start slowly moving towards a higher percentage of fixed income.  All of the Funds that I chose follow well known and established Indexes.

I chose this set up because:

- It will be 10+ years before I need to touch this money (perhaps as long as 40 years depending on how long I feel like working)
- I have a moderate to high risk tolerance, which means that I won't sell if my portfolio suddenly drops
- I have no desire to try and beat the market, I would prefer to match it
- If the economy in one area of the world plummets I have investments in other parts of the world*

*Of course all the markets in the world could plummet at the same time, the earth could also be hit by a meteorite, the odds though are fairly low.

Have a question?  I'd love to hear it!

Investment Rules

I'm a rules person.  Not in that I like people imposing rules on me.  That doesn't always go over so well.  I am, however fond of structures and guidelines on my own terms.  I make my own rules so that I know  that everything is in order.  Which means I have investment rules, of course.  While these rules are not hard and fast they give me a good guide of what to look for when buying investments and are the compilation of many many books that I have read.  They are as follows:

- Don't try to beat the market, match it using Index Funds.
- Never hold more than 75% of your total portfolio in Stocks or Bonds
- Never hold less than 25% of your total portfolio in Stocks or Bonds
- Keep at least 30% of your portfolio in foreign investments
- Use monthly dollar cost averaging instead of trying to time the markets
- Always look at the mutual fund/index fund's annual operating expenses, they should not be more than:*

·      Taxable and municipal bonds-------------------0.75%

·      U.S. Equities (large and mid-sized stocks)---1.0%

·      High-yield (junk) bonds-------------------------1.0%

·      U.S. equities (small stocks)---------------------1.25%

·      Foreign stocks-------------------------------------1.50%

There are guide lines that I try to follow with all investments.  These guidelines do still offer a lot of flexibility depending on when you intend to use your money and what your risk tolerance is.

**Maximum annual operating expenses are courtesy of Benjamin Graham's "The Intelligent Investor"

Have a question?  I'd love to hear it!