TFSA RRSP Investing - why you should likely NEVER put money in an RRSP

These are general guidelines not hard/fast rules I did up for my Kids in Feb 2020. These rules apply to Canadians, not to people in other countries.

Here is the summary:

• RRSPs are almost always BAD - you end up with LESS 'real' money than other options. Really! Do the full math including calculations for how little it grew due to inflation. It is a government lie that (for most people) it gives you more money for retirement. The only things RRSPs are good for is they put money where you are unlikely to spend it - so they help you at the emotional money management level, while helping you do your part to give the government MORE money than if you didn't use them. But Trudeau and his predecessors know … Putting money in an RRSP vs putting the same after tax money into the suggestions below almost always means you have LESS money in retirement and you pay the Government MORE in total taxes (which is why YOU have less.) I kid you not. I wish I had run the math more correctly when I was 18 years old. Alas, I believed the lies of Daddy Trudeau and others after him.
• TFSA. Almost always better than RRSPs (Up to their limits of course.)
• Paying off your bank mortgage - almost always your best choice FINANCIALLY, but maybe not the best if money burns a hole in your pocket. Once you are done paying your mortgage off as quickly as possible, you should next treat 'filling' your TFSA with the same urgency.

Do NOT put (more) money into an RRSP unless you have maximized your, and your spouse's, TFSA.

Do all your CANADIAN investing in your TFSA

Do all your USA investing in your RRSP. (If you break this rule – do your appreciating shares in your TFSA, but make sure ANY dividend stocks are in your RRSP. You will lose 15 to 30% of all dividends from US companies in your TFSA.)

I'm using Wealth Simple Trade, Canadian trades are free.

Once you get about 20K in it … pick good solid income companies and buy their stocks (you’ll need at that time to make the TFSA a Self Directed TFSA, perhaps with someone like Wealth Simple TRADE, that is fairly easy to do.)

I used to advise ETFs. I do NOT anymore, this will be a longer discussion than I have time to type down. I also do NOT recommend Mutual funds anymore (I did 35 years ago before ETFs were invented.) I DO advice picking 5 to 10 good (I’ll discuss definition with you) dividend producing companies.

Make sure your spouse agrees with you – or make sure they have said they don't care they want you to do it without bugging her with boring details! And they are OK if you ‘lose it all’. (You shouldn’t if you follow my advice – but I COULD be wrong. I’m not God. Canada as a country could be wiped out and 100% of your Canadian investments with it. Don’t laugh or think it is impossible – that’s what people in Germany thought 1 year before THEY were wiped out – TWICE in the last century.)

So I really predict:

• Trudeau is going to win in 2021
• Alberta is going to continue to lose
• And I hope that in 2024 & 2025 some degree of sense will be returned to the USA and Canada, but I doubt it; Trudeau will continue to make glaringly wrong choices and Quebec and Ontario will keep forgiving him like water off a duck.

Already, hoards of people in the US are realizing: They removed a Jackass/Idiot who was overall helping the economy and making MANY mistakes that didn’t amount to much with… A soft spoken man who is going to PURPOSELY damage the economy in the USA and Canada and will not make Mistakes – he’ll do them, including morally reprehensible things from a Christian perspective, ON PURPOSE. And think COVID-19 … was it REALLY Trump’s fault? 100% 50% 25%? 10%? My guess is 10-25%. But Biden would have killed the US economy to save that 25%. Would that be the correct choice? I honestly don’t know.

* Essentially, the strategy I plan to do is:

• Buy 8 to 12 dividend companies that consistently give dividends 9 out of 10 years or more, have done so for 9+ years, who have increased their dividends and never decreased them. Then buy based on the current return rate (share price divided by current dividend per share rate.)
• When the share price RISES to a point where you can REPLACE the company with one that has a better return rate (I haven’t decided the formula for the AMOUNT needed to do this yet) … sell the ‘overpriced’ stock(s) and buy the ‘underpriced’ stock(s).
• If there are NO good buying opportunities. Do NOT sell anything.
• Keep an eye on good quality bonds and commercial papers - often there are good times to buy them, but you have to use something like Scotia Trade for that, you can't do it with Wealth Simple Trade, at least not yet.

I’ll be looking at having some that are Canadian and some that are USD to balance out the risk. Don’t buy ones with really good returns (> 6%) without being VERY careful. Having said that, if you are confident in the company, getting SOMETIMES one that has a 8% such as, as a CURRENT example:

• Enbridge is currently just over 8%. When you look at why, you see some ‘terrible’ things. Now … do you feel that the company has taken matters in a way that mitigates them – or is there even more risk that could hurt them MORE.
• When I say hurt them more, realize I mean – will it HURT the company’s ability to PRODUCE their dividend for the next 10+ years. If the answer is no – joyfully buy at the depressed price.
• As I said, right now it is at 8%. When I get into the marketing in March, if it is still 8% and nothing has changed, I may buy them. I may not. It depends on the ‘fundamentals’.
• What happens if it goes to 16%? This means the share price dropped in half. In THEORY you lost HALF your money. But you are not in this for the appreciation, you are in it for the long term dividend. So basically it becomes a ‘buy more’ if you don’t have ‘too much in it.
• What happens if it goes to 6%? Or 4% It means the share price has INCREASED as much as 100%. In theory you just DOUBLED your money. But since it didn’t get BELOW 4% … it is still a HOLD. If it drops to 2% … and there is NO indication they are going to increase their dividend a lot, and no indication they have made a heap ton of money, then it becomes a ‘SELL’ as soon as you find something better.
• But on the other hand, you might decide that Enbridge has far too many assets at risk, and you may be concerned that their INCOME GENERATING assets are going to be blocked and stop making money. If so, you should NOT buy them.
• If you say “I have no clue whether Enbridge has mitigated their risks” then you should NOT buy. Yes, you might lose out on a ‘chance of a lifetime.’ I’ve missed out, so far, on 62,352 ‘chances of a lifetime’ that I REALLY would have made a lot of money on. (Oh, but I also didn’t go into any of the 743,620 chances of a lifetime that I would have lost everything on.) Yes, I wish I had bought Tesla in 2018. No I’m not going to buy Tesla now – hoping for the ‘fool greater fool’ to continue for another year or so. You have OFTEN heard me with GRANDIOSE plans to make ‘millions of dollars’. If you add them all up, and I had succeeded in all of them, I would have $500,000,000 now. But I didn’t. Partly because while I SHOT for $1M or $10M, I always did it carefully so that it would be ‘slightly profitable’ rather than ‘lose my shirt’. As a result – yes, I have made (and kept in assets, mainly our land and house) several million dollars. FAR less than I have constantly dreamed. And I have ‘failed’ to make more because I didn’t take enough risks. But I also have come out pretty good so far – even though NONE of my biggest, most exciting dreams, ever came through. (Maybe in 2021 1 to 4 of of them 😉 ) So I have practiced what I preach. I have taken opportunities that have done better than average. I have done fairly well, and I have never made 10’s of millions on big gambles, but I think I can stand before God and say: I carefully thought about the resources you gave me, and I used them, on the whole, fairly wisely, and I learned from several of my mistakes and did better as I got older, and I will continue to learn going forward, and I gave you money for you, God, to invest and I think you are pleased overall with me, and I think I will do even better between now and when I die.

As a minor point, if I invest in Enbridge or other risky, I think it would be reasonable for you to ask me WHY, at what price point, and whether I would ‘now’. If I give you good answers and not just “I decided it was worth being a flyer”, then it probably would be OK for you to trust me for that level of investment advice! One key thing always: Don’t ask how MUCH I invested, ask me what PERCENTAGE of my portfolio I invested.

$1000 out of a $10,000,000 investment is 0.1%, but it is 10% of a 10,000 investment. Because of the cost of time, cost of trades (thought/time $$ that is almost or is zero with Wealth Simple TRADE), it MAY be worth doing 0.1% investments on ‘high risk’, but 10% - no. 1%? Probably not, because REALLY, if you are going to play the HIGH risk game, you need to be playing with a minimum of 20 unless YOU have VERY active participation and influence on one.

As an entrepreneur, I have to take risks – think of how much I have invested in MCC, including buying Ray out in 2019. I did put most of my eggs into one basket, and I did take a HUGE percentage risk. But, without going into details, that is different. Trust me! Think about the Bible verse about casting your bread upon the waters, seven or even eight. Most scholars agree that this meant: Invest in 7 or 8 good ships. Because 3 of them are going to sink, but the other 4 will make you a lot of money. But now think about this … what about the CAPTAINS of those ships? If the ship sinks or they are killed by pirates, they lose EVERYTHING. So THEY should invest in canons and guns, and everything to make THEIR ship as close to perfect as possible – putting all their eggs in one basket. ANYTHING to make sure THEIR ship has the highest chance of success. Either that … or they should give up their captaincy and become an investor. So, my advice on INVESTING is very different from my advice on entrepreneur-ing and I think it still matches the Bible “Count the cost before building a tower” advice. Investing advice is very different from running your own company advice and the two SEEM to be at conflict from the 10K foot view..

As far as the boring 4% income generating …. I think that is going to be 70% or more of my investing (No ETF’s, No mutual funds) by the end of 2021. Boring, but profitable.

But to do it really, I need someone to run the numbers for me at least once a year, and I haven’t had time to do it for several years.

There is a book (currently free on Amazon Prime+ or whatever they call it) “Your TFSA Compounder” It outlines a strategy that is VERY much like mine. (They do NOT have the “when the ratio is too high and there is a low ratio alternative you can buy – make the trades.” But other than that, they nail the strategy I plan to use to manage any large amounts of money when I sell a company, and I’d use the SAME strategy for the amount I have coming up this year if I can get the time – I expect 8 to 24 hours of work – to do it.. (Noting that Mom and I sold EVERYTHING we could cash out to buy Ray’s shares so we are currently cash poor. We have assets – stocks and bonds in RRSP, house, private shares etc.., - but none of those can be easily turned into cash without long term negative.) The beauty of the book is it lays out most of my strategy as well as telling you HOW to ACTUALLY do it – step by step (except for my one differing step.). When I have some time 😊 I plan to print out (print to computer files) the 8 or 9 important pages in the book. All the rest of the book is just fluff trying to convince you why it is such a good idea.

Now, I put this at the bottom on purpose.

• IF you are paying the HIGHEST tax rate currently on all the money you might put into your RRSP.
• And IF your total earnings going into CPP will be low (perhaps you only are working a few years of your life in Canada)
• AND you are SURE your investments outside the RRSP are doing so bad that you will have effectively no income other than OAS (Old Age Security.) OK … THEN and probably only then, putting SOME money into a RRSP makes sense.

Update: I had an employee bring to mind that this article was based on the assumption of my kids (yes it was ... as I said at the top) and he suggested that I was forgetting that many people have credit card debt and other forms of debt.

I replied: But none of those people would be considering putting money in a TFSA or RRSP would they? And as I said the words I thought about how the government coerces you - indeed lies to you about RRSP to encourage you to put money into an RRSP and I realized I was wrong. I was assuming that no one with debt beyond Mortgage would even consider putting money into one of these funds without paying off their debt, and that it was only those with Mortgages that might ignore that they had debt. But I apologize. If you have ANY other debt, not just mortgage. Pay it off first and make a decision to not go into debt again unless there is a life threatening reason (OK, and don't go on an expensive holiday first so you can come back say you don't have money for food so Peter says it's OK to have a loan now.)

Aside: a loan taken out to generate income is slightly different since it is paid back in 'before tax' dollars. I'm talking consumer debt - debt that you can't write the interest payments off on your taxes.

The order in which debt should be paid off depends on the type of debt and the interest rates involved. Here are some general guidelines to consider when prioritizing debt repayment:

High-Interest Debt: Start by paying off high-interest debt, such as credit card debt or payday loans, which often have interest rates exceeding 20%. Paying off high-interest debt first can save you a significant amount of money in interest charges over time.

Secured Debt: Secured debt, such as a mortgage or car loan, should be the next priority after high-interest debt. Failure to pay secured debt can result in the loss of the collateral that secures the loan, such as your home or car.

Other Debts: After paying off high-interest and secured debt, consider paying off other debts such as personal loans, medical bills, or student loans. These debts may have lower interest rates than credit card debt, but can still accrue significant interest over time.

Low-Interest Debt: If you have multiple low-interest debts, such as a small personal loan or low-interest credit card, consider paying off the smallest debt first. This can help you gain momentum and motivation to continue paying off larger debts.

It is important to note that each person's financial situation is unique, and some may choose to prioritize debt differently based on their individual circumstances. Additionally, it's important to continue making minimum payments on all debts while prioritizing the highest interest debt to avoid late fees and penalties. It is always best to consult a financial advisor or debt counselor to develop a personalized plan for paying off debt.

Also, if you have multiple debts, I have heard of debt consolidation and that it can reduce your total interest load while you are paying the debt off. I can't give any specific advice, but it certainly sounds worth looking into if you have multiple debts with some high interest rate ones.