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Today, you are going to learn about how much you can save in fees and taxes on your investments, depending on how much time you want to spend optimizing your investment portfolio.
In Canada, there are inexpensive options that make things extremely easy and automated for you, but they are slightly more expensive and slightly less tax efficient.
On the other end of the spectrum, there are other investments available to Canadians that are as optimized as you can get in terms of keeping your fees low, and saving you money on both Canadian and international taxes. The trade-off though, is that these optimizations take a fair bit of work on your end to learn and implement.
So how big are these optimization benefits to you?
How much are you really saving by going with a fully optimized approach vs. a semi-optimized approach?
How big should your investment portfolio be before you start optimizing? or should you start optimizing right away?
We also cover where to go to check what fees you’re currently paying on your investments, so that you can have a nice apples-to-apples comparison when you are debating what fund or ETF to buy, or to check whether you are currently overpaying on your investments.
We cover all this and more on this episode.
This week’s episode is a little different since I optimize my investments to this highest level (in terms of paying the lowest fees and lowest taxes), and my guest also does the same. And so, in this episode, instead of the guest doing 90% of the talking, we instead each talk about how we both tackle these questions and I figure this way you are getting two educated perspectives, from two different people, in Canada, who have already been doing this for years.
I think ultimately this approach to the episode will help you make an educated decision on what level of optimization you want to pursue in your own portfolio.
Enjoy the episode. 🙂
Kornel
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Resources from the Episode:
- You can get a free Passiv account at this link.
- Instructions on how to get the free PREMIUM account from Passiv is here.
- Ben’s excellent video on asset location mentioned in the episode.
Questions Covered:
- Brendan, everybody wants to pay the lowest taxes and fees on their investments, but what is the actual size of this benefit, if somebody is putting in the work to have their DIY investment portfolio fully optimized? And lets break this down into the two main components: The fees side (MER), and the tax minimization side (which has to do with asset location).
- The 2nd component is using “asset location” to save on taxes. Brendan, can you define what “asset location” is?
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When applying these anticipated savings, by doing this form of asset location optimization, it seems that if your portfolio is large enough, this is something that could potentially save you hundreds of dollars per year on your investments, and those savings compound annually as well, so it may be worth your while to do this. But if your portfolio is small, then it might just save you tens of dollars per year, in which case, I would argue that it’s not worth the added complexity, and you can just keep the same ETF or ETFs across all your accounts.
What are your thoughts on this Brendan? How do you think about this, and when is it “worth your while” to actually pursue this level of optimization, if ever?
Do you do this level of optimization yourself in your own portfolio?
- For somebody that is, just getting started or has a relatively small portfolio size where these asset location savings aren’t significant enough to justify the work one must do, for this level of optimization, what benefit is there to using a tool like Passiv?
- Why not just go with a robo advisor or get an asset allocation ETF or some mutual fund that tracks the index instead of buying individual ETFs and having them be automatically rebalanced in Passiv?
- For those that want to hold multiple ETFs or even some specific stocks, and still want this highest level of asset location optimization, why has doing this level of tax and fee optimization been difficult in the past?
- Alright, let’s go through what investments to hold in each account for maximum tax efficiency, both in terms of how to pay the least Canadian tax, as well as foreign withholding tax, and how to pay the lowest MER (vs letting a robo advisor do it for you). I can go through how I do it in my own portfolio, but can you start us off in regards to how to pay the lowest MER, as ultimately, that’s the component that can save us the most money (literally hundreds of thousands of dollars over our investment lifetime with a large enough portfolio).
This interview ended up being close to two hours so to make it more manageable, part 2 of this interview will be released next week where we focus specifically on asset location (i.e. where to hold each type of ETF for the maximum tax efficiency).
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