Dustin Meredith AGE: 31 PLACE: Victoria TFSA TOTAL: $16,000 STRATEGY: Low-cost TD-eSeries funds with bond allocation in line with your age

Me and my TFSA

Dustin Meredith is an administrator at the University of Victoria and is a newcomer to investing. While he’s been contributing to his TFSA savings account for two years now, he only decided on an investment strategy in the last six months. “I really had no idea what investment returns were available,” says Meredith, 31. “But I feel more comfortable now.”

Meredith has been reading up on investing and some of the books that helped prepare him to invest his own money include The Wealthy Barber Returns by David Chilton (“It was entertaining and helpful.”) and The value of simple: a practical guide to taking the complexity out of investing by John Robertson. “Before reading these two books I really had no idea what to do with the money I’d saved,” he says.

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But perhaps the two sources that helped Meredith the most were columnist Dan Bortolotti’s Canadian Couch Potato web site as well as Andrew Hallam’s Millionaire Teacher. Meredith considered the Tangerine balanced fund, but he ultimately decided he wanted to handle rebalancing his portfolio on his own to learn how it works. So he decided on TD e-Series funds because they were low cost and because he was already with TD.

In terms of strategy, Meredith borrows from Millionaire Teacher. In that book, Andrew Hallam advises readers to link your fixed income allocation to your age. “I’m 31 years old, so I have 31% of my $16,000—$4,960—in the TD Canadian Bond Index Fund-e and I’m comfortable with that,” he says. The other 69% of Meredith’s money—$11,040—is divided three ways, with $3,680 in each of the Canadian, U.S. and International TD e-Series Index funds. “It’s nice to see the money growing,” says Meredith.

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Going forward, the TFSA will be his main savings vehicle. “I’m a member of my employer’s defined benefit pension plan so I’m not planning to contribute much to RRSPs just yet,” says Meredith. In fact, his goal now is to top up his TFSA. He aims to contribute $500 a month, but it will vary, depending on expenses. “If I have a little extra money that month, I contribute more,” says Meredith. “And when I’ve maxed out my TFSA, I’ll move onto RRSPs. I’m comfortable with my investment strategy and plan to apply it to all my investments going forward.”

Pro tip

A conservative portfolio that can afford to take on more risk

About 31% of Meredith’s portfolio is in a fixed income ETF and that worries Jon Parry, investment manager and certified financial planner with Ironshield Financial Planning in Toronto. “I have a different definition of risk than Meredith,” says Parry, commenting on Meredith’s 31% holding in fixed income to accommodate his conservative approach to investing.

“With interest rates set to rise, Meredith could see capital depletion if he holds long-term bonds,” he says. As a result, Parry would like Meredith to ensure his TD fixed income fund contains bonds with shorter durations—anywhere from one to five years. “If he really wants fixed income in his portfolio at his young age, then he should put half his fixed income holdings in a short-term bond ETF,” says Parry. “It will give him capital preservation, which is what he wants.”

But given Meredith has the “Golden Goose” with his defined benefit pension plan with his employer, Parry thinks he can take on a bit more risk in his holdings—albeit slowly. To that end, he’d like Meredith to look at some sector funds in a growth area like technology. “He should start small by moving maybe 3% of his fixed income holdings to a tech ETF,” says Parry.

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