A small TFSA with way too many funds

Me and My TFSA

LIZ ENRIQUEZ

AGE, 26

PLACE: Hamilton, Ont.

TFSA TOTAL: $7,732

STRATEGY: Still looking for an easy, lost-cost growth strategy

LIZ’S TFSA HOLDINGS

Equities

RBF1008 Global Bond Fund SR D $1,005

RBF1022 U.S. Equity Fund (Cdn.) Series D 580

RBF1025 RBC O’Shaughnessy U.S. Value Fund 1,265

RBF1035 RBC Global Div. Growth Series D 1,785

IGM Financial Inc. common shares 1,124

Total equity mutual funds: $5,759

Fixed income

VAB Vanguard Cdn. Aggregate Bond Index $965

ZFL BMO Long Federal Bond Index 986

Total fixed income ETFs: $1,973

TOTAL TFSA PORTFOLIO: $7,732

Liz Enriquez, 26, of Hamilton, is a freelance graphic designer. She started saving in her TFSA four years ago when her dad advised her to open one up and buy some mutual funds. “But I have zero strategy,” says Liz. “I know general investing principles, like ‘buy low and sell high’ but not much more. I’m still finding my way.” Last year, using a $50,000 down payment she had saved up over the years, Liz bought a $240,000 house in Hamilton, Ont., that included a rental unit that she collects rental income from today. “I save a lot,” says Liz. “Even with the mortgage, I’m still saving $2,000 a month—$1,500 of which goes into my TFSA and $500 a month into my RRSP. I make under $50,000 annually so the TFSA is a better fit for me now.” These days, Liz lives a pretty simple life, working much of the time. And she loves the flexibility of her freelance work because she can do it anywhere, anytime. “I can work from home or from a restaurant or library,” says Liz. “I don’t own a car and walk everywhere,” says Liz. “I live a pretty simple life and spend most of my time is spent working.” Right now Liz has four equity-based mutual funds, one stock and two fixed-income exchange traded funds (ETFs) in her TFSA, which totals $7,732. But before the house purchase, she had several more mutual funds in both her TFSA and RRSP. “I got rid of most of them when I bought the house,” says Liz. “I’ve whittled it down to these few holdings now but by mistake, I bought the IGM Financial Inc. stock as well. I don’t even know how I got it. My dad looked at my account and noticed I had bought it but otherwise I wouldn’t have even realized the purchase.” Still, even though Liz is stumbling through her TFSA investments she says her returns still look decent. “My online RBC account highlights my returns and most of them are green, so I must be doing something right. But most days I just think, ‘Oh my God, I have to figure this out and get a good strategy going. I have to think long term. I want something low-cost, simple and easy to manage and I want to be able to do it myself. I’d be happy with that.” What the pro says

“Liz is doing a lot of things right,” says John DeGoey, a portfolio manager with iAs Securities in Toronto. “I’m especially impressed with her aggressive savings (playing catch up on the unused room) and the recognition that the TFSA is a more appropriate vehicle than an RRSP at her stage in life and income level (tax bracket).”

DeGoey explains that given the amount of money Liz has invested, she probably still has too many products. Going forward for the next few years, one or two ought to be fine. Putting $1,500 a month into one fund of $750 a month into each of two funds is likely all she ought to be doing with her TFSA contributions at this point.

Liz should look for low-cost mutual funds (most ETFs don’t work well for monthly purchases because you have to pay trading fee, but there are exceptions) that offer broad diversification. If using only one fund, then a global equity fund is all she’d need. If she wants to use two funds, then perhaps a fund that invests in U.S. equities and another that invests in international equities (generally defined as the world outside of North America) would do the trick. This is essentially a variation on the first strategy since the U.S. makes up about half the world’s stock market capitalization.

“The good news is that Liz is disciplined enough to be a good saver and savvy enough to do that saving in a TFSA,” says DeGoey. “All she needs now is one or two good products (a number of banks have really some good “D Class” funds available) that are relatively cheap and available exclusively to DIY investors.”

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