Harvesting returns from your “explore” investments + MORE Jan 25th

My wife and I have been educating ourselves on the merits of ETF vs traditional mutual funds after deciding to make a switch from our personal financial advisor. We were late starters in saving and we have another 15- to 20-year investment horizon ahead of us before retirement stares at us.

Our current RRSPs are in mutual funds (one of the three largest mutual funds companies), all DSC back-end loads with high MERs (2.5% in most cases). Hence, we are locked in with early redemption fees, which came as a surprise to us.

We are considering moving to an online brokerage account and opting for an ETF for our RRSPs.

Our current RRSPs are held with DSC fees, in case of early redemptions. We don’t see an option to negotiate this, nor do we want to move these to another fund that will not have strings attached. I was wondering if you could clarify the costs, as we are considering moving to an online brokerage account and opting for an ETF for our RRSPs.

Thank you in advance for taking the time…

Some investors prefer to park most of their investments in a broadly diversified portfolio of ETFs and then use a small portion of their account to speculate on riskier investments. This “core and explore” approach can be a sensible way to curb your investing FOMO (fear of missing out) without risking your retirement savings on speculative bets.

One way to manage a core-and-explore approach and keep reasonable checks on your behaviour is to limit the “explore” part of your portfolio to no more than 5% to 10%. The amount is up to you, but the point is to decide ahead of time what your explore threshold will be and what rules you’re going to follow—and then stick to those guidelines over time.

Staying disciplined with this portion of your investment portfolio is important because speculative investments such as individual stocks, thematic ETFs and cryptocurrencies can be incredibly volatile. That means your 10% “play money” allocation could quickly become 20% of your portfolio (or more) if one of your speculative picks pans out…

I just read your article on paying capital gains on a property inherited from a spouse when there was no official separation agreement in place. Interesting, and I have a related question. If spouses separate with an official separation agreement but keep the matrimonial home and mortgage in both names, as one spouse living in the house and assuming all payments, does the spouse that leaves have to pay capital gains at that time or later when the home is finally sold? If ever?–Mark

Capital gains tax when separating or divorcing

When spouses separate or divorce, there is often an equalization of net family property and a transfer of assets between them. Spousal or child support payments may also be required to be paid from one spouse to the other thereafter. 

Money in a registered retirement savings plan (RRSP), or similar retirement account, can be transferred from one spouse to another without triggering any tax implications such that the funds remain tax deferred. 

Likewise with capital assets—like non-registered investments, rental properties, or private company shares—that may be subject to capital gains tax…

A MoneySense reader writes: 

I’m writing to ask about beneficiaries, successor holders and successor annuitants for TFSAs and RRIFs. What is the difference between these, and how do you choose the right one for each account?

FPAC responds: 

When you have a registered account, such as a tax-free savings account (TFSA), a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF), you have the option—depending on which account you have—of naming a beneficiary or a successor for that account. First, let’s break down the differences between beneficiaries and successors.

A beneficiary inherits the assets in your account without inheriting the account itself.

A successor takes ownership of your account and all of the assets in your account. 

Whether you can name a beneficiary or successor depends on which registered account you have, but this chart shows the options: 

Account TypeBeneficiary OptionsRRSPOne or more beneficiariesRRIFOne successor or one or more beneficiariesTFSAOne successor or one or more beneficiaries

So, what’s the difference between a successor holder and a successor annuitant? For a TFSA, the successor is called a successor holder (short for successor account-holder)…