Comments on: This and That: Budget 2009 Edition

By: Michael Orman

Michael Orman — Thu, 05 Feb 2009 02:51:37 +0000

Of course, the budget was big news this week and as you might expect, there was bumper crop of coverage. Jon Chevreau of The Financial Post breaks down the tax goodies in the budget.

By: Thicken My Wallet

Thicken My Wallet — Tue, 03 Feb 2009 18:24:12 +0000

A very tardy thanks for the link (on a mini-vacation this weekend).

By: Forone

Forone — Mon, 02 Feb 2009 22:09:06 +0000

It’s gotten to where Canadian bank dividend yields are high enough to warrant RRSP or TFSA sheltering, assuming payouts will be stable.

By: Canadian Capitalist

Canadian Capitalist — Mon, 02 Feb 2009 04:10:28 +0000

Larry: Thanks for the article about the Schulich RRSP. Wow, $250 million is very impressive. But, I’d think of putting a lot of stock in a single company inside a RRSP as very risky. Even when it pans out, like it did for Mr. Schulich, the tax treatment would be better in a taxable account.

Depending on an investor’s asset allocation, bonds go into a RRSP first. Then, provided there is room, go US and international equities (funds or ETFs). PH&N did a detailed study (I couldn’t find it online anymore) that found that even for Canadian stocks, the tax shelter provided by RRSPs make it an ideal vehicle.

Finally, we come to stocks. It’s probably okay to hold blue-chip, lower risk stocks inside a RRSP. For instance, Royal Bank isn’t going to provide returns markedly different from the overall market. But, a hole-in-the-ground penny stock or go-go high-tech stock might. They are best held in taxable accounts. If they crash and burn, which is the likely outcome, there is tax loss to offset. If they become 50-baggers, only capital gains taxes are owed.

By: larry macdonald

larry macdonald — Sat, 31 Jan 2009 13:10:13 +0000

Ram
I should have mentioned that the link in my post above was sent to me by Warren MacKenzie (of Second Opinion Investor Services). And he said this about the article:

“…they believed his RRSP was worth over $200 million. Now that is great but the decision to put the shares of his company in his RRSP will cost him probably about $40 million more in tax than if he did not put them in. Not that $40 million dollars would not matter to him but I am sure if he could go back we would probably hold his shares outside of his RRSP.”

By: larry macdonald

larry macdonald — Sat, 31 Jan 2009 12:10:38 +0000

Ram
My apologies for the omission. Space constraints were to blame. Anyway, I wonder if one would want to hold stocks in an RRSP even if they do earn capital gains over the long term? The RRSP converts the gain (and dividends) to fully taxed income in retirement, whereas in a non-registered account, only half the gain will be taxed. Couldn’t one end up paying a lot more taxes on stocks held within an RRSP than outside? Here is an example of Seymour Schulich. http://www.thestar.com/Business/article/410508

By: Four Pillars

Four Pillars — Fri, 30 Jan 2009 23:25:24 +0000

Thanks for the link!

By: Canadian Capitalist

Canadian Capitalist — Fri, 30 Jan 2009 22:40:24 +0000

Ben: Just to clarify, one final sentence that I added didn’t make the article: “These days, I make sure our RRSPs hold well-diversified portfolios that still have market risk but not individual security or sector risk”.

By: Ben

Ben — Fri, 30 Jan 2009 22:21:24 +0000

And TD has backed down on the $35 inactivity fee for LOC’s.

http://business.theglobeandmail.com/servlet/story/RTGAM.20090130.wtdfees0130/BNStory/SpecialEvents2/home

By: Ben

Ben — Fri, 30 Jan 2009 22:15:59 +0000

Quoting from Larry’s column: “It does not make much sense to fill your RRSPs with risky investments. If you lose a lot of money you cannot claim a capital loss.” While the point is correct, surely this blanket statement cannot stand on its own:
1. One doesn’t invest in RRSP’s with the intent to lose money. Using a buy and hold strategy in index funds, why wouldn’t one hold stocks in an RRSP?
2. The single greatest thing about RRSP’s is the tax efficiency afforded most people who will have lower incomes in retirement compared to working years. There is only so much money in household budgets, and if one put 18% into bond RRSP’s, that wouldn’t leave much left over for stocks held in taxable accounts, nor would one see a lot of growth in the bonds.
Surely there are other pros/cons to holding stocks inside/outside RRSP. This could be a good blog posting, if not already addressed.