In Episode 7 of the Canadian Portfolio Manager podcast, Justin takes investors on an epic journey through the new “Plaid” model ETF portfolios. During the show, investors will learn the asset location strategies necessary to manage their very own Plaid portfolio. Michael James (creator of the popular personal finance blog, Michael James on Money) will also drop by to share his personal experiences managing a Plaid-like portfolio. As always, there will be an exciting ETF Kombat – this time, between XEF and IEFA, who will battle it out in your TFSA, RRSP and taxable accounts. After the match, we’ll take you through the advantages and disadvantages of going Plaid. And to end the show, Justin will answer an asset location question from David, who is currently managing a 100% equity portfolio.
- I don’t get it (in search of the true meaning behind the “Plaid” reference in Spaceballs) [0:00:46.7]
- The basic asset location concepts behind the Plaid portfolios [0:02:33.7]
- Setting up a Plaid portfolio (in just 10 “simple” steps) [0:03:44.7]
- Light vs. Ridiculous vs. Ludicrous vs. Plaid: After-tax performance comparison [0:11:10.7]
- Michael James on Money discusses managing his Plaid-like portfolio [0:12:57.7]
- ETF Kombat: XEF vs. IEFA (featuring PWL’s own Martin Dallaire as the voice of the judge [0:15:29.7]
- Advantages and disadvantages of managing a Plaid portfolio [0:22:08.7]
- Ask Bender: Asset location strategies for a 100% equity portfolio [0:25:39.7]
Blog posts/resources discussed in this episode:
Canadian Portfolio Manager: Introducing the “Plaid” ETF Portfolios
Canadian Portfolio Manager: Model ETF Portfolios
Thanks for everything! Great stuff so helpfull!
I wanted to ask for someone in retirement who can’t put money in an RRSP anymore.
Does this choice of asset location make sense?
TFSA for all foreign equity
Taxable account for all canadian equity and all bonds.
For more context, my mom is in retirement, dosent have any RRSP and she is selling an apartment for probably around 320 000$ after tax.
So I’m thinking fill up TFSA with foreign equities and the rest buy part candian equity and a big part of bonds in a taxable account.
Thank you for your time and have a great holiday!
@Christian Baygin – If there is no RRSP to worry about, it is more tax-efficient to hold equities in your TFSA first, and your taxable account second (as you’ve proposed here), so I don’t see an issue with your plan.
Enjoy your holiday as well! :)
Hi Justin, thank you sincerely for all your work. I have read all your blog posts and listened to all your podcasts. I don’t believe I would struggle in terms of the difficulty of maintaining a plaid portfolio, but I am trying to optimize asset allocation AND the time required to manage the portfolio. My thought is to use my TFSA and Taxable account for XEQT (and other asset allocation etfs as I get older, I am currently 25), and then model your ridiculous portfolio for my RRSP for better product cost and FWT. What are your thoughts on this strategy? Can you think of a more optimal strategy that optimizes asset allocation AND time required to manage the portfolio? NOTE: Currently have 80k in my wealthsimple TFSA that I would move to Wealthsimple trade and buy all XEQT, 50k cash which I would put in a taxable account with Wealthsimple Trade and also buy XEQT, and lastly my RRSP with 20k I would move from Wealthsimple to Questrade to allow for easy execution of norbert’s gambit. I have done lots of reading and research over the last months and am now trying to put it into action. I look forward greatly to your answer and once again thank you sincerely for your priceless information and countless hours of efforts to come up with all this material :)
Hi Justin, I’m new to Canada so no TFSA or RSSP room. Do you have any way to make the plaid or ludicrous models fit/ best suit the scenario where everything I have will go into taxable accounts? And the ridiculous account seems to have higher MER for the taxable account scenario, compared to the RRSP one, would this always be the case in order to get the best deal tax wise?
@TD – The asset location strategy of the Ludicrous and Plaid portfolios require multiple account types – if you only have one account type (taxable), the entire concept is irrelevant.
The Ridiculous portfolios employ U.S.-based foreign equity ETFs in order to reduce the foreign withholding tax drag in an RRSP. This tax concept is also not as relevant to taxable accounts.
OK thanks, so foreign based etf’s are ‘tax-cheaper’ in an RRSP but not taxable account or only US based ones?
@TD – Please feel free to check out “The Ultimate Guide to Foreign Withholding Taxes on ETFs” video, which should answer all of your FWT questions:
https://canadianportfoliomanagerblog.com/part-i-foreign-withholding-taxes-for-equity-etfs/
Hello Justin. After weeks of going through your blogs and also going to the dark side for a couple days where I thought I can beat the market to get some alpha, I am back to sticking with a target allocation portfolio and calling it quits to experience finer things in life!
I was able to create a calculator in Excel following somewhat of the Plaid model and using the Solver add-in to have the perfect asset allocation table. (I thnk) Just max out XIC in TFSA (best for reducing the tax drag compared to any other ETF) and max ITOT in RRSP (most savings since the highest allocation group while making single ticket management simpler). If there is balance left then throw in the XEF and XEC in there otherwise rest goes into taxable. I will be buying XUU in RRSP as and when I have the money over the year and then convert XUU -> XUU.U -> ITOT once in 6 months to a year or whenever I decide to rebalance my portfolio. This will reduce oppotunity cost since I will be in exactly the same asset class thoughout. What are your thoughts? I am also using a 41% tax bracket in retirement (Alberta) in my RRSP before doing the allocations as well.
When I start moving into Fixed Asset class territory, I will just keep it all in Taxable for the disadvantage it has in RRSP based on your plaid post. I know once I get into 30-40% bond the math will need to be readjusted to ensure optimal performace, but for atleast the next 10 years I am sorted as I will not want to venture to Bonds till then. I think its working like clockwork now. If you or your readers will care happy to share the spread sheet so others can utilize it as well. Just needs some cleaning before I can share.
Do you see anything missing in the calculation? Thanks again for all the help you have given us over your YouTube, Podcasts and Blogs. You with your combination of academic data and actionable practicle bitesize information have single handedly transformed my thinking on passive indexing and eased me into managing my investments without being a headless chicken. Thank You!
@Anuraag: I’m glad you’ve been enjoying the online resources!
As XEF has the highest dividend yield, it is generally best held in the RRSP/TFSA. XUU/ITOT has a relatively low dividend yield, so if you need to kick any equity asset classes out of your RRSP/TFSA, U.S. equities may be a more appropriate choice. Canadian equities may also be a decent choice for the taxable account.
Hi Justin,
You often use the top tax rate in your examples, which is presented as the top marginal tax rate. I just wanted to make sure, in reality one should estimate his future effective tax rate, not his future marginal tax rate?
Thanks for all the great content,
@Ferd: It should technically be the effective tax rate on the RRSP/RRIF withdrawals in retirement. So you would calculate your taxes payable before any withdrawals, calculate your taxes payable after the withdrawals, take the difference, and divide this tax difference by the total withdrawal for the year to determine the effective tax rate to use in your estimates.
Thank you for uploading this onto your youtube channel :)
@Sahill Mohan: You’re very welcome :)
20:20 lol .”…Norton’s Gamble”
@Alan: Glad someone has my sense of humour ;)