Many of my clients and blog readers are looking to change their investing strategy to a simple indexing approach using a single asset allocation ETF. This can make a lot of sense if you want to lower fees, improve diversification, and simplify your portfolio. Indeed, the complexity of investing has been solved with all-in-one ETF products.

This transition is quite simple in tax-advantaged accounts like RRSPs, TFSAs, RESPs and LIRAs. If you are already using a discount brokerage account, you can simply sell your existing holdings and then immediately buy the appropriate asset allocation ETF. Do.

The process is a bit more work for those leaving a managed mutual fund account. You will need to open a discount brokerage account (I would recommend your major bank’s brokerage arm or an online broker like Questrade), open the appropriate account types, and then switch your existing account to “cash” that is i.e. your existing business will sell all of your holdings and send the proceeds to your new cash brokerage account. The process can take two weeks or more, but once the money has landed in your account, you can go ahead and buy your asset allocation ETF.

For those with non-registered (taxable) accounts, we have the added complication of taxes to consider. When you sell your existing holdings in a taxable account, it triggers a taxable event where you will incur either a capital gain or a capital loss.

Sometimes you can work around this problem by transferring your existing assets “in kind” rather than “in cash”. But if the desired outcome is to simplify your portfolio with an all-in-one ETF, you may need to sell existing holdings eventually.

This was problematic when stocks were up sharply in recent years. I was working with clients to assess the current capital gains situation and we were determining a plan to sell individual pieces over a few years to spread out the tax hit.

But it’s now 2022 and stocks and bonds have suffered double-digit losses. It’s time to review your taxable account and see if it makes sense to speed up this transition.

Whether your taxable account is filled with individual stocks, mutual funds or ETFs, assess the current market value of each security and compare it to the book cost or original price paid. You may find some positions underwater, others breaking even, and some still performing well.

It’s time to get out your calculator. Add up all total losses from individual holdings that are less than your original cost. Add up any total gains from individual holdings that are greater than your original cost.

Let’s say your entire non-registered portfolio is in an overall loss position. It’s only reasonable to sell the entire portfolio and immediately buy the asset allocation ETF you’ve chosen. Sales will result in capital losses, which may be used to offset any capital gains realized during the tax year. You can also carry capital losses back three tax years and/or carry them forward indefinitely.

This approach is also compatible with what is called the superficial loss rule, which states that you cannot claim the capital loss if you buy an identical security within 30 days of your sale transaction.

And, if you already happily manage a portfolio of ETFs, you can still engage in more traditional tax-loss selling by identifying non-identical ETFs to pair with your existing ETFs so you can reap a capital loss, buy another ETF immediately, and always follow the superficial loss rules. For that, Justin Bender has you covered:

One of the benefits of a bear market is that it can provide an opportune time to reorganize your taxable investments and move to a low-cost indexing solution more quickly and more tax-efficiently than if we were still in a raging bull market.

Did you make a tax-loss sale this year?

Recap of this week:

There is finally activity on the site of our new home after weeks of waiting for the trusses to be delivered. We should see a lot of progress over the next few months before winter arrives.

A completion date in early 2023 means we need to start preparing our existing home to put up for sale. We’re reasonably good at keeping clutter down, but the house will definitely need some finishing touches before it’s ready for potential buyers to view.

In case you missed it, I’ve looked at some sustainable investing solutions for DIY investors.

I also took a fun look at my own investing multiverse and the different choices I could have made when I started investing in indices.

Many thanks to Rob Carrick for including my article on the retirement risk zone in his latest Carrick on Money newsletter (subscribers).

Weekend reading:

The Belle Curve blog explains why retirement is the biggest event in life that no one talks about.

Jon Chevreau wonders if it makes sense to retire while we’re still in the midst of a pandemic.

Is retirement possible for those who start saving and investing after 40? Yes, but you don’t have the luxury of making mistakes (subs).

This Morningstar article takes a look at the “Witch of Wall Street” and the difference between wealth and well-being:

“Although Hetty objectively had more money than almost everyone in the world, she still believed she didn’t have enough. She believed in it so strongly that she spent her life and ruined her relationships at the looking for more.

Moshe Milevsky and Guardian Capital have unveiled a new retirement solution called Modern Tontine.

Retirement expert Fred Vettese has long advocated deferring CPP to age 70 while taking OAS benefits at age 65. His reasoning was more psychological than mathematical. It is quite difficult, he explained, to persuade people to delay their CPP until age 70. The benefit of delaying SV is also less than for RPC.

But Mr. Vettese did not expect the higher and more persistent inflation we are experiencing at the moment.

“If you believe that higher inflation is either (a) here to stay or (b) at least more likely to emerge in the future, then I strongly advise you to postpone both CPP pensions and OAS: Pensions from these programs are fully protected. inflation, something only the federal government can credibly provide.

Keep the usual caveats in mind: if you have reason to believe you have a shorter than average life expectancy, or if you simply don’t have enough personal savings to draw on while waiting for the CPP and OAS, then it makes perfect sense to take your benefits at age 65.

Finally, looking for personal finance book recommendations? Investment manager Markus Muhs has you covered with this impressive list.

Have a great weekend everyone!

Printable, PDF and email version