How to spread allocations within different accounts?

I’ll probably start self-managing my RRSP soon and I was wondering how I could spread my allocations between my TFSA and my RRSP.

1) When people say they have 5% of their portfolio in stock XYZ, how are the shares typically spread across different accounts? Let’s say 500 shares of the stock represent that 5%. What could make me want to hold 100 shares in my TFSA and 400 in my RRSP (or vice-versa)?

2) How should a “full position” be spread? Let’s say the same 100 shares represent 2% of my TFSA and the 400 shares represent 75% of my RRSP. In that example, my whole portfolio (TFSA + RRSP) still has a decent 5% allocation in stock XYZ, but the allocation within my RRSP would be overweighed. Should I aim for the same 5% balance within each account?

I know the strategy must be different for each different stock or depending on one’s strategy, but I’m a bit confused. Your advice is always helpful. Thanks!

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Asked on November 8, 2021 11:10 pm

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Private answer

Hey there,

Let's answer these two questions:

1 - When talking allocations, it is important to talk about it in the context of one's portfolio. That includes ALL accounts. So for example, when I say 5% of my portfolio is invested in Fortis then I mean that is the allocation across my TFSA, RSSPs and un registered accounts. Where one holds a stock is really irrelevant in terms of allocations. I can have 1 % in my TFSA, 3% in my RRSP and 1 % in my non-registered. Makes no difference. Bottom like 5% of my portfolio is exposed to Fortis.
2- That is almost the same question, but in terms of where should a position be held? That is a much more complicated answer and at the end of the day comes down to individual tax purposes. I know many like to hold dividend and foundational stocks and US dividend stocks in RRSPs, growth in TFSA and risker plays in non-registered. However, there may be good reasons to hold them in other accounts depending on one's own tax profile. So that one is really not a cut and dry answer. For example, holding risker plays in a non-registered is a tax strategy. If you end up losing money on it, you can then at least claim that loss against other capital gains. In a TFSA for example, its lost - and no way to benefit. Not only that, that portion of your contribution room is gone forever. So many things to take into account here.

All that being said, going back to the original question - in terms of allocations it doesn't matter, but do take allocation of your positions across all accounts.

Mat

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Posted by Mathieu Litalien

Answered on November 10, 2021 4:59 am

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