Where We Invest Our 2022 TFSA Contribution Limit?

January the first month of the year is TFSA season. As investors, we should pay attention to maximizing or at least start contributing to our favorite registered account in Canada – Tax Free Savings Account (TFSA). If you are 18 years old ( the age of majority in your province)  then you can start opening an account and invest in TFSA this year. If you haven’t contributed since 2009, the table below shows how much you can put in as a lump sum for 2022.

Here are the TFSA contribution limits by year since its inception.

  • 2009 – $5,000
  • 2010 – $5,000
  • 2011 – $5,000
  • 2012 – $5,000
  • 2013 – $5,500
  • 2014 – $5,500
  • 2015 – $10,000
  • 2016 – $5,500
  • 2017 – $5,500
  • 2018 – $5,500
  • 2019 – $6,000
  • 2020 – $6,000
  • 2021 – $6,000
  • 2022 – $6,000

Total contribution room = $81,500

For quite sometime, we have been investing in our TFSA, and we have been home bias in our investments focusing only in Canadian equities. Monitoring and tracking these companies are a lot easier when they are household names that you are very familiar with.

While a few of our Canadian dividend stocks already have global exposure due to the expansion of their businesses and interests in other countries. However, there are bigger economies outside Canada that we may miss out if we don’t diversify our investments. Canadian economy is only a smaller piece of the pie compared to the rest of the world. Thus, we decided to allocate our 2022 TFSA contribution limit towards investing in the international and emerging markets. Our annual goal is to put a lump sum contribution of $6000 each into our TFSA account first week in January.

Mark Seed of My Own Advisor has an excellent article on Dollar Cost Averaging vs. Lump Sum Investing.

The easiest way to invest in these companies without buying directly shares of a company is through an Exchange Traded Fund (ETF).  An ETF can be structured to track a price of an individual commodity or a group of diverse collections of securities. We’ve researched a number of ETFs and came up with this top five ETFs for selections.

Vanguard FTSE Emerging Markets All Cap Index ETF

Ticker: (VEE)

MER= 0.24%

Asset Class: International

Dividend Distribution: Quarterly

 

Vanguard FTSE All Developed All Cap Index ETF

Ticker: (VIU)

MER = 0.22%

Asset Class: International

Dividend Distribution: Quarterly

 

iShares Core MSCI All Country World ex Canada Index ETF

Ticker: (XAW)

MER = 0.22%

Asset Class: Global Equity

Dividend Distribution: Semi-annual

 

iShares Core S&P US Total Market Index ETF

Ticker: (XUU)

MER = 0.07%

Asset Class: US Equity

Dividend Distribution: Quarterly

 

BMO MSCI Emerging Markets Index ETF

Ticker: (ZEM)

MER: 0.27%

Asset Class: International

Dividend Distribution: Annually

 

After taking all considerations, we decided to allocate our TFSA 2022 contributions to Vanguard’s VEE and VIU ETFs. Both ETF’s have a diverse collections of equities internationally and emerging markets. Below shows the top holdings of each ETFs, companies that we won’t have not any exposure if we only continue to invest in Canadian equities. Given these points, we firmly believe that these two ETFs will complement our current TFSA portfolio.

VEE Top 10 Holdings:

  • Tencent Holdings Ltd
  • Alibaba Group Holding Ltd Ordinary Shares
  • Taiwan Semiconductor Manufacturing Co Ltd
  • Meituan
  • Taiwan Semiconductor Manufacturing Co Ltd ADR
  • Reliance Industries Ltd Shs Dematerialized
  • Naspers Ltd Class N
  • Vale SA
  • Infosys Ltd
  • China Construction Bank Corp Class H

VIU Top 10 Holdings:

  • Nestle SA
  • Samsung Electronics Co Ltd
  • ASML Holding NV
  • Roche Holding AG
  • Toyota Motor Corp
  • MSCI EAFE
  • LVMH Moet Hennessy Louis Vuitton SE
  • Novartis AG
  • AstraZeneca PLC
  • SAP SE

 

How did these five ETFs perform over the last 5 years?

Ticker      MER         Total Return %                            1 YR               3 YR                5 YR

VEE         0.24%       Total Return % (NAV)                 0.14                 8.71                7.71

VIU          0.22%       Total Return % (NAV)                 9.04                10.76               8.42

XAW        0.22%       Total Return % (NAV)                18.23               16.64             12.56

XUU         0.07%       Total Return % (NAV)                25.81               21.83             15.93

ZEM         0.27%       Total Return % (NAV)              – 2.95                8.65                 8.82

 

Paying a minimal fee on any investment is vital to the overall return of your investment. While we believe that we can’t go wrong with any of these 5 ETFs, we feel that VEE and VIU meet our own criteria selection which reflects who we are as investors. While XAW may have performed well compared to my two picks but it could also due to majority of its holdings are in the US markets. For this reason I’d prefer to pick XUU for my US market in my RRSP account.

Moreover, aside from its lower fees VEE and VIU pay a quarterly distribution compared to XAW  (semi-annual) and ZEM (annually). Under those circumstances, as an individual stock picker like myself – it was an easier decision to pick VEE and VIU. We prefer frequent dividend payments so that we can reinvest those dividends in a timely manner.

While XUU has the least MER of 0.07% and it tracks the total US total index market, I believe its best suited in our RRSP account. In addition, XUU also met our criteria just like VEE and VIU it pays quarterly distribution.

Vibrant Dreamer blog has a great analysis and his Best and Most Tax Efficient US and International ETFs Listed on TSX.

 

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Earlier this week we renewed our home insurance. We made a massive savings by switching our home insurance to Square One up to 30%. If you are looking to renew your home insurance or for a new property, why not check them out and see for yourself if you can also get a huge discount on your home insurance.

Moreover, we also made dramatic changes in our lifestyle and embraced minimalism hence we perceived that living less is more. A few simple money saving tips we have done are reducing our cell phone bills and switching to No fee bank accounts.  Similarly, I find dividend investing easy and more fun and you can choose a no fee trading account either as a new or seasoned investor.

Finally, when we are employed, we receive a regular income and a feeling of financial security. However, jobs are not guaranteed and can be also lost and taken away beyond our control as many have experienced during this pandemic due to an abrupt closure of businesses. Therefore, it is very important to generate multiple sources of income to protect ourselves from these unfortunate events.

 

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[…] Prudent Life highlight some of his favourite ETFs for his TFSA. A smart list overall for […]

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