Why I hold 100% Stocks In My Retirement Accounts
In a previous article, I talked about “why I hold 80% stocks and 20% real-estate” inside my Tax-Free Savings Account. Consider this an update to this previous story as I have changed my thinking somewhat. I’ve decided to ditch the Real Estate Investment Trust (REIT) ETF’s from my retirement investment accounts.
The reason I am 100% invested in stocks for the foreseeable future? It’s the same reason I held 80% of my investments in stocks before now; they offer the best probability of capital appreciation over the next several decades. REIT’s may have some capital appreciation but the primary benefit of REIT’s is the income they produce through their exceptional yields. Once I am closer to retirement I will likely start investing in REIT’s again, but for now, I am all stocks.
Before I dive in and break down my portfolio inside my retirement accounts, 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 crash 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 50% tomorrow, I would not panic as I am investing for the long haul and will wait for the market to rise again. I realize most people don’t have the stomach for that.
- We are speaking specifically about my holdings inside my retirement savings accounts. contributions made into my Registered Retirement Savings Plan (RRSP) are tax-deductible and I can defer the dividends and capital gains I accrue from my investments until I begin withdrawing my gains after 55. That’s at least 25 years of tax-free capital accumulation. On the other hand, I also am investing through a Tax-Free Savings Account (TFSA), like my RRSP my dividends and capital gains are not taxed while inside the TFSA, but what is even better, once I withdraw I still pay zero tax on any of my investment gains (hence the name).
OK now that we got that out of the way, here is the general allocation of my TFSA/RRSP Portfolio. I only invest in 3 low-cost Exchange Traded Funds (ETF) inside my TFSA/RRSP but give me exposure to the global stock market, and the majority of the publicly traded companies in the world. Here are the funds and the weight they hold inside my portfolio. SPOILER: They are ALL Vanguard!
- 40% U.S equities through the Vanguard S&P 500 ETF
- 30% in Canadian equities through the Vanguard FTSE Canadian Index ETF
- 30% in global equities through the Vanguard Total International Stocks 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 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 (30%)
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 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 (30%)
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 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.
So that’s it! That is my allocation in my RRSP/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!
Looking to brush up more on retirement accounts (available in Canada) In a previous post I outlined the primary differences between an RRSP and an TFSA.
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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.