In a Previous post I outlined the primary differences between an RRSP and an TFSA. If you are not familiar with the differences I’d suggest reading that first.
Before I dive in and break down my portfolio inside my TFSA a few basic facts that help provide some context for my personal investing philosophy.
- At the time of writing this post I am 29 years old, so I have a long investing time horizon.
- History has shown us that even after the worst crashes the stock market has always bounced back (the dow jones is currently up nearly 300% from its lowest points of the 2008 crash)
- Given points 1 & 2 I have an extremely high risk tolerance. If the market dropped 30% tomorrow, I would not panic as I am investing for the long haul and will wait for the market to rise again.
- We are speaking specifically about my holdings inside my Tax Free Savings Account, meaning no matter how much the value of my portfolio increases I won’t pay 1 penny in tax if I sold it all. This creates an incentive for me to be more aggressive in my TFSA than I would in my RRSP or taxable investment accounts.
OK now that we got that out of the way, here is the general allocation of my TFSA Portfolio. I only invest in 4 low cost Exchange Traded Funds (ETF) inside my TFSA but give me exposure to the global stock and real estate markets. Here are the funds and the weight they hold inside my portfolio.
· 40% U.S equities through the Vanguard S&P 500 ETF
· 20% in Canadian equities through the Vanguard FTSE Canadian Index ETF
· 20% in global equities through the Vanguard Total International Stocks ETF
· 20 in global real estate through the iShares global REIT ETF
I should note that this is a very “aggressive” allocation, meaning most people have around 30% of their investments held inside Bonds, GIC’s or other “safe” investments. Again refer to the 4 points above as to why I am so aggressive inside my TFSA.
Vanguard S&P 500 ETF (40%)
What is it? A fund that tracks the performance of the S&P 500 Index, which is an index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. It is seen as a leading indicator of U.S. equities
Top Holdings? All of the holdings are large “blue chip” U.S companies. To give you an idea the top 3 stocks held inside this fund are Apple, Microsoft and Amazon
How has it Performed? For the Past 5 years it has had an average annual return of of 12.93% at the time of this post.
What does it cost? 0.04% meaning for every $10,000 invested in the fund it costs $4 per year.
Why I Invest In It? I can invest in some of the largest companies in the world like Amazon and Apple for only 4 basis points, need I say more?
Vanguard FTSE Canadian Index ETF (20%)
What is it? A fund that seeks to track the performance of the general Canadian stock market.
Top Holdings? Remember this is Canada and we have 4 massive banks. So the current top holdings are Royal Bank of Canada, Toronto Dominion Bank (TD) and Bank of Nova Scotia
How has it Performed? For the Past 5 years it has had an average annual return of of 7.07% at the time of this post.
What does it cost? 0.06% meaning for every $10,000 invested in the fund it costs $6 per year.
Why I Invest In It? I am Canadian, so I like the idea of having a decent allocation of my investment in the Canadian economy and in Canadian dollars.
Vanguard Total International Stock ETF (20%)
What is it? A fund that seeks to track the performance stocks outside of the U.S and is balanced between developed markets and emerging markets.
Top Holdings? Unlike the Canadian Fund which is weighted heavily towards the financial sector, this is an incredibly diversified fund with no stock making up more than 1.15% of the total assets. Some of the holdings include Samsung, HSBC and Toyota.
How has it Performed? For the Past 5 years it has had an average annual return of of 5.78% at the time of this post.
What does it cost? 0.11% meaning for every $10,000 invested in the fund it costs $11 per year.
Why I Invest In It? one word: Diversification. Along with my U.S and Canadian funds this now gives me exposure to almost every major stock index in the world.
iShares Global REIT ETF (20%)
What is it? A fund that seeks to provies broad exposure to REITs from around the world, which invest in real estate directly and trade like stocks.
Top Holdings? I think the easiest way to express this is that it invests roughly in about 60% U.S real estate and 40% global real estate.
How has it Performed? The fund is only 3 years old and so far it has had an average annual return of of just over 3% at the time of this post. However, since it invests in real estate it also yields about 4% per year in dividends.
What does it cost? 0.14% meaning for every $10,000 invested in the fund it costs $14 per year.
Why I Invest In It? I am a big believer in real estate as an investment and the cash flow it provides and this gives me a way to invest in real estate all around the world without having to fix a broken toilet, deal with tenants or any of the other headaches of being a landlord.
So that’s it! That is my allocation in my TFSA. What do you guys think, am I crazy or do you agree with my current strategy? I’d love to hear what you guys are investing in? Let me know in the comments!
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.