Thursday, January 27, 2011

RRSP vs. TFSA: Who cares?!

Now that the TFSA has been around for a while, people have some significant used or potential contribution room for their account. This has given rise to the debate between the RRSP account and the TFSA account. Which is better? Which should I contribute to? What are the benefits, risks, and best practices for me? What if I'm heavily taxed in retirement? What if I don't get as much Old Age Security?

If you're young like me (22 years of age), I say who gives a flying fig? I have both accounts, and I contribute to both evenly. Each account has its purpose, and I'll meet whatever complications arise 40 years from now when they come. What else can I do? There is absolutely no way of predicting what taxes will be in four decades, what income bracket I fit into, whether I'll be eligible for OAS. I say that it's essentially a guessing game as to whether taxes will be higher or lower when I start withdrawing from my RRSP when I retire. If I don't qualify for OAS because I have too much money that I can live off of on my own, isn't that fair?

My plan is this: Contribute to my RRSP for the purpose of a first-time-home-buyer down-payment. Contribute to my TFSA to build a dividend growth portfolio. Simple. Sound principle, should work out just fine if I'm disciplined in sticking to my plan. I don't give a hoot which is better.

Edit: An update on my RRSP plan: RRSP First Time Home Buyer's Plan

Wednesday, January 19, 2011

Back to Investing

After a period of 4 months of unemployment, I once again have an income. I decided not to work during my school term at university, in favour of studying and improving my grades to attempt to renew my scholarship. I have set up Pre-authorized Purchase Plans (PPP) for my two RRSP mutual funds, alternating contributions to each every two weeks (every pay day). This way, I'll keep my allocation at about 50-50 equity and bonds. If I want to fine-tune the allocations, I'll have to save up $100 to contribute since that's the minimum contribution outside of a PPP. I've also started contributing small amounts to my stock-trading TFSA account. Once I get enough for a round of dividend stock purchase, I'll post another dividend stock analysis on what I decide to buy. Stay tuned!