Stage 01: Wealth Accumulation

Some ideas to guide, navigate and support the accumulation of wealth.

Last updated: Sat 22-Aug-2026 afternoon

Executive Summary

We Will End Up With

  • A financial flowchart
  • A Do-It-Yourself (DIY) / self-directed online brokerage
  • Accounts that we need (TFSA, RRSP, RESP, etc.) in the online brokerage
  • Purchase low cost, broadly diversified index funds in the above created accounts
  • Purchase new funds every pay cheque
  • A buy and hold attitude to the funds - we are not going to actively manage them
  • DRIP enabled funds so that we get compounding
  • We will rebalance once or twice a year if/as needed

Starting Early

  • Compounding is the eighth wonder of the world – Albert Einstein.
  • Start early and you can get compounding working for you.
  • Start late and you lose out to the advantages.
  • Compounding can allow your money to earn more than your annual salary for you.

https://www.rbcgam.com/en/ca/learn-plan/retirement-resources/the-importance-of-starting-early/detail

  Scenario A Scenario B Scenario C
  Invest for 10 years.
Then nothing for 30 years.		 Do nothing for 10 years.
Then invest for 30 years.		 Invest for 40 years.
Monthly Amount $100 $100 $100
Annual Interest Rate 7% 7% 7%
Interest Compounded Monthly Monthly Monthly
At The End of 40 Years $140,480 $121,997 $262,481
Your Contributions $12,000 $36,000 $48,000
Total Interest Earned $128,481 $85,997 $214,481
Overall Growth 1,171% 339% 547%

https://www.getsmarteraboutmoney.ca/calculators/compound-interest-calculator/

Key Take Away

  • Investing for 10 years and then doing nothing is better than doing nothing for 10 years and then investing for 30 years
  • Start early
  • Compounding works

Goal

  • Earning income
  • Grow your portfolio to become financially independent
  • Make informed decisions
  • Enjoy life

Considerations

Flowchart

Flow chart

	flowchart LR
		PayCheque["Paycheque<br>Assume 2x a month"] --> CompanyRRSP["Company Matching RRSP<br>(take full advantage of this to the maximum what they will match, but no more)"]
		PayCheque --> CompanyStock["Company Stock Purchase Plan, etc.<br>(maximize the free money from your company)"]
		PayCheque --> BankAccount["Bank Account<br>(drop your paycheque here and then automate it out; see High Five)"]
		BankAccount --> PayDebt["PayOff Debt"]
		BankAccount --> EmergencyFund["Emergency Fund<br>(build to 6 months of expenses here)"]
		BankAccount --> LifeStyle["Life Style"]
		BankAccount --> TFSA["TFSA"]
		BankAccount --> RRSP["RRSP"]
		BankAccount --> Savings["Short and Long Term<br> Savings"]
		Plan["Plan<br>(create a plan for your savings and retirement goals)"]
		Budget["Budget<br>(determine how much your monthly / annual expenses are)"]

Some Other Flow Charts to Review

Reddit Personal Finance Canada

Another flowchart

The High Five Banking Method

  • See here for more details on how to structure your bank accounts.

Plan

  • Create your initial plan.
    • Does not have to be complex.
    • You will edit and update it many times over your lifetime.
    • Start with the basics.
  • Financial Independence (and/or Retirement).
    • When?
    • How much will your annual expenses be when you retire - take a guess?
  • How much money do you have to save each year to get to this retirement goal?
  • Who are you planning for?
    • You?
    • Spouse?
    • Kids?
    • Other?

Budget

  • Create a list of your monthly expenses
  • This will tell you how much money you need in your Monthly Expenses Bank Account at the start of the month to pay all your bills for the month
  • You do not need to budget every small item – make sure that the big items are covered
  • Ensure that your own savings is the most important, and first, item you budget for
  • Each year end download your bank account and credit card statement to CSV and do a spreadsheet analysis to see where you spent your money
  • This will let you know if you need to adjust and will give you your annual expense needs.
  • 25x your annual expenses is your retirement number

Paycheque

  • Let’s assume you get paid twice a month
  • Directly off your paycheuque take advantage of your employer’s benefits as much as you can and/or makes sense - don’t leave money on the table
  • Automatically deposit your net pay into your Bank Account
  • Set up your money transfers to be automatic – the less that you have to worry about it, the better
  • Put half your monthly expenses into your Chequing 01: Bills and Chequing 02: Lifestyle bank accounts – so that when you get to the start of the next month you have cash in this account to pay all bills
  • Transfer money to your various savings goals
  • Once all your planned transfers are made, the money left over, is your free money – enjoy life

Savings Goals

  Description
Payoff Debt Pay off any debt that you may have
Emergency Fund Build your emergency fund until you have a few months of emergency cash.
If you have TFSA room, use your TFSA to hold your emergency fund to avoid taxes.
TFSA If you are making less than $50K per year, maximize your TFSA first
RRSP Maximize your RRSP next
Extra Savings Save for any other things that you may want – vacations, cars, etc.

TODO: Add in FHSA and saving in your TFSA during the year and transfer to other by year end.

Emergency Fund

Why?

  • Life is unpredictable
  • Job loss or other significant factors could impact your financials
  • Having an emergency fund to protect yourself is essential

How?

  • Determine your one-month expenses
  • Save money to cover one months of expenses
    • Then three months
    • Then six months

Where?

  • This money should be cash, not an investment
  • Saved in a high interest savings account
  • Or in a TFSA (as cash) to avoid paying taxes, if you have the room

More Information

Investing Definitions

  Definition
Stock A part ownership in a company.
Fund A collection of stocks.
Index A collection of stocks that represent a market segment.
Index Fund A fund that mimics an index.
ETF (Exchange Traded Fund) A fund (or an index fund) that is traded on the stock market.
DRIP Dividend Re-Investment Plan – automatically re-invest dividends to purchase more units.
SIP Systematic Investment Plan – regular (weekly, biweekly, monthly, etc.) purchases.
Rebalance Adjust your mix of investments to achieve your target allocation.

Mutual Funds vs Index Funds vs ETFs

  Mutual Funds Index Mutual Funds ETFs (Exchange Traded Fund)
Big Achievement Groups of stocks Group of stocks that just mimics an index and bought on the stock exchange at the end of the day.
No need for fancy strategies.		 Group of stocks that are traded on the stock exchange through out the day.
Tracks Varies An index Varies but often an index
Managed Actively Passively Depends whether it is based on a mutual fund or an index fund
Trades End of day End of day During the day
Management Expense Ratio (MER) High – ~1% to ~2% Low – ~0.36% to ~0.41% Lower yet - ~0.12% to ~0.25%
Transaction Fees Depends on online brokerage - usually nothing Depends on online brokerage - usually nothing Zero to $9.99 per trade, depending on the online brokerage
Ease of Trading Orders can be placed in dollar amounts at any time Orders can be placed in dollar amounts at any time Often have to buy whole shares unless the brokerage offers fractional shares.
Automatic Monthly Investments Yes Yes Typically no, but depends on the online brokerage
Rebalancing Depends on the fund Depends on the fund Depends on the fund
Examples n/a TDB900, TDB902, TDB909, TDB911 VEQT, VGRO, VBAL

https://www.youtube.com/watch?v=vGcOGYkttI4

https://canadiancouchpotato.com/getting-started

Growth

Your investments generally have one of three ways to grow.

  Description
Interest Guaranteed return from loaning someone your money.
Fully taxed (in a non-registered account).
Dividends A company sharing some of their profits with you (an owner of the company).
Preferentially taxed (in a non-registered account).
In the case of eligible Canadian dividends may not be taxed at all until after ~$50k
https://www.taxtips.ca/taxrates/canada.htm
Capital Gains The value of the company getting higher and thus the stock price getting higher.
50% is not taxed (in a non-registered account).
https://www.wealthsimple.com/en-ca/learn/capital-gains-tax-canada#what_is_a_capital_gain_or_capital_loss
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html

Active vs Passive Investing

  Active Investments Passive Investments
Philosophy A trained fund manager can pick stocks and beat the market Just buy the market / index – it is very unlikely that a trained fund manager can beat the market
People A team of analysts / traders / et al Very small team
What Do They Do Watch the market
Analyze companies
Sell and buy stocks to try to be ahead of the market		 Buy what is in the index
No sales unless the index changes (rare) or rebalancing (if needed)
Goal Beat the market by trading stocks and being better than the market Match the market, no need for active trading
Fees High (2% to 3%) as the team of people employed must be paid Low (~0.5%) as there are very few people to pay
Success Low
The vast majority of funds, do not beat the market - spiva
The few that do, rarely beat the market + the fees
You can’t know beforehand which funds will beat the market
Past performance is not an indication of future performance		 High
Just match the market and keep the fees low
spiva

Fees

  Description Advice
Front Load Money you pay to the fund company when you purchase the fund.
Often used to kick back to your financial advisor for getting you to purchase that fund.		 Avoid
Back Load Money you pay to the fund company when you sell the fund.
Often used to kick back to your financial advisor for getting you to purchase that fund.		 Avoid
Deferred Sales Charge Money you pay to the fund company if you sell the fund before a certain number of years (~5 – 7).
Often used to kick back to your financial advisor for getting you to purchase that fund.		 Avoid
Transaction Money to trade (purchase or sell) a fund at the online brokerage.
Each brokerage has a different fee plan – make sure that it aligns to your needs.		 Minimize
Management Expense Ration (MER) Money you pay to the fund company to manage the fund.
Active management  higher costs
Passive management  lower costs		 Minimize

Management Expense Ration (MER)

If you have a portfolio of a certain size (see below) and a MER of a certain size (see below) here is how much money you would pay each year in MER fees.

  $100K $500K $1MM
0.1% $100 $500 $1,000
1.0% $1,000 $5,000 $10,000
2.0% $2,000 $10,000 $20,000
3.0% $3000 $15,000 $30,000

Notes

  • Keep your MER low.
  • As your portfolio rises in value a higher MER can cost you a significant amount of money.
  • This is a fee each year.
  • And this fee means that the amount of money left in your account does not compound.
  • At $1MM and 3.0% in MER you are paying someone a car each year - are you really getting value for this?

If you pay your MER over 20 years and assuming that your rate of return of return is 6.0% this is how much your fees would cost you.

Percentage $100K $500K $1MM Percentage Loss
0.1% $5,997 $29,986 $59,973 3%
1.0% $55,384 $276,919 $553,838 25%
2.0% $101,601 $508,006 $1,016,012 46%
3.0% $140,102 $700,512 $1,401,024 63%

Make sure that you understand the above table

  • If you pay 0.1% in fees on a $1MM portfolio over 20 years you will lose 3% of your total potential portfolio to fees. Meaning that you will keep 97% of your money.
  • If instead, you pay 3% in fees you will lose over half your portfolio (63%).
  • A 3% fee does not sound large but compounded over time it adds up and eats away at your portfolio.
  • Pay attention to minimizing your fees.
  • If you get your total portfolio fee into the 0.25% then you are good enough. You do not need to get it to 0.1% as it gets harder and harder to minimize fees to closer you get to zero.

To run the numbers yourself see: Larry Bates T-Rex Score.

Account Management Types

  Description Pros Cons
Full Service Pay someone at a bank or investment firm to give you advice and manage your investments for you. Hands off.
Someone will guide you each step of the way.		 Highest cost.
Need to meet (phone / face-to-face) with your advisor to adjust your investments.
Conflict of interest – they get paid based on what they convince you to purchase in your account.
Fee Only Pay someone for their time to advise you on what to invest in.
You go out and buy the investmetns yourself.		 No conflict of interest. Hard to find.
Robo-Advisor A computer program asks you questions and devises an investment plan for you based on an algorithm and executes the investing for you. Lower cost.
Standardized algorithms.		 The medium place.
Asset Allocation Purchase an asset allocation fund that automatically rebalances for you – e.g. Canadian Couch Potato Simple – buy one thing.
Relatively cheap.
Easy to do in a Do It Yourself (DIY) account.		 Very little.
Do It Yourself (DIY) You pick what to invest in. This could (and often should) just be the Asset Allocation choice above. Lowest cost.
Can invest in whatever you wish to.		 You must make your own decisions.
You must rebalance yourself.

Asset Allocation

  • An “asset” is a general term for your investments – stocks, mutual funds, index funds, ETFs, etc.
  • Assets can be broken down into multiple categories
    • By size of the company
    • By geography
    • etc.
  • The following is a typical breakdown.
  Summary Details Examples
Cash Cash and cash equivalents. Safe but loses buying power over time as inflation reduces its buying power. Cash in the bank.
Fixed Income Bonds and other “secure” investments. Relative secure and used to offset equity volatility. Bond funds.
Candian Equities Canadian stocks. Stocks in Canadian companies – can be volatile. TD, Bell, Rogers.
USA Equities USA stocks. Stocks in USA companies – can be volatile. Facebook, Amazon.
International Equities International stocks. Stocks in International companies – can be volatile.  
Emerging Markets Newly developing countries. Stocks in newly developing companies – can be volatile.  

Asset Allocation Heuristics

  • The safe portion of your portfolio (cash and fixed income) should be equivalent to your age.
    • But also need to consider your risk tolerance.
  • If you are young, you are more heavily weighted to equities as this will be where your growth comes from and you have the luxury of time to recover from market downturns.
  • If you are less young, there are arguments to move your portfolio more towards safer investments to avoid risk if the market goes down.
  • Cash and Fixed Income is often combined into one category.
  • International Equities and Emerging Markets are often combined into one category.
  • There are some things to consider with this
    • What is your ability to handle risk?
      • Need to take risk.
      • Ability to take risk.
      • Tolerance to take risk.
    • Note that some people think that you should move to a “safer” mix by the time that you retire.
      • Some will use a cash wedge (TODO Add link to section).
  • Each year (or every half year or if an extraordinary situation occurs) you would rebalance to your target allocation.

Asset Location

The idea behind asset location is that by putting specific funds into specific locations you can minimize your taxes as some locations are treated differently in the Canadian tax code.

This is not something for the beginner:

  • In a small portfolio is it not worthwhile – the money you save / make is not offset by the complexity.
  • If you are not maximzing your RRSPs and TFSAs and having a substantial amount in a non-registered account then this idea may not be for you.
  • Trying to be too smart can lead to lower returns.
  • Feel free to ignore this until you are more seasoned and can decide if this is worthwhile or not.
  • Just skip this section.
  Key Ideas Consider Holding Consider Avoiding
RRSP / RRIF / LIRA Money contributed reduces your taxable income.

Money grows tax free.

Money withdrawn at ordinary income (like your pay cheque) rates which are usually the highest.

Canadian / USA treaty there is an exemption from the USA withholding tax on interest and dividend income that is earned from USA investments.		 Canadian and USA Interest (bonds, GICs, T-bills, etc.)

USA Dividends		 Foreign (non-USA) Interest and Dividends – as there may be withholding taxes paid that cannot be recovered via the foreign tax credit

Canadian Dividends – as you cannot claim the Canadian dividend tax credit .

Capital Gains – as you cannot claim the capital gain (or loss) in the account and when you withdraw the money you will be paying taxes at ordinary income rates.
TFSA Money contributed does not reduce your taxable income.

Money grows tax free.

Money withdrawn without tax.

No Canadian / USA treaty in place as a TFSA account is not considered a retirement account.		 Canadian and USA Interest (bonds, GICs, T-bills, etc.).

Canadian Dividends – can’t claim the Canadian dividend tax credit but the dividends are not taxed.

Capital Gains – as there will be no taxes paid.		 USA and Foreign Dividends / Foreign (non-USA) Interest – as there may be withholding taxes paid that cannot be recovered.

Capital Losses – as you cannot claim a capital loss to offset other capital gains as well losses within this account will not give you more contribution room.
Non Retgistered Money contributed does not reduce your taxable income.

Money grown is taxed each year.		 Capital Gains – as they are preferentially taxed.

Capital Losses – as they can be used to offset capital gains.

USA and Foreign Dividends – although they will be fully taxed you can may be able to use the Canadian foreign tax credits to offset some of these.

Return of Capital – as they reduce your cost base which can result in a larger capital gain or smaller capital loss which will allow you to benefit from the preferential tax rates on capital gains.		 Canadian and Foreign Interest – as they are fully taxed in this account.

For more information see here:

Remember that this is a complex strategy and most often you will do yourself more harm than good by trying to implement this strategy, especially at lower portfolio values.

Proceed with an abundance of caution.

TFSA and RRSP

See TFSA and RRSP

RESP

Age % Stocks % Bonds / GIC
00 90 10
01 85 15
02 80 20
03 75 25
04 70 30
05 65 35
06 60 40
07 55 45
08 50 50
09 45 55
10 40 60
11 35 65
12 30 70
13 25 75
14 20 80
15 15 85
16 10 90
17 5 95
18 - 100

You’re going to create a glide path:

  • Start years old
  • End years old
  • Think about your risk tolerance and whether you will be able to pay for some of university when the kid is ready and the market drops
  • Based on your risk tolerance you will define how “safe” you want to be
  • The glide path can be a little more strep wise than full glide if this fits your risk tolerance

Let’s assume that this is your glide path:

  • Start at zero years old
  • End at 18 years old
  • By the end have no stocks

Adjust the ratio as you see fit for your own risk tolerance.

Each year adjust your asset allocation to meet the glide path .

More information can be found here:

Online Brokerage

Online Brokerage Features to Considerations:

  • Does it support the accounts you need - RRSP, TFSA, RESP?
  • Can you set up a Systematic Investment Plan (SIP)?
  • Does it support DRIP?
  • Are there trading fees to consider?
  • Does it have the funds that you will want to purchase?
  • What is your plan for per paycheque investing?
  • What other needs do you have?

Risk

What is Risk?

  • Volatility in the market?
  • The chance that you do not make your number when you are ready to retire regardless of the volatility along the way?
  • Something else?

Three Factors of Risk

  • Need: Do you need to take on risk?
  • Ability: Do you have the ability to take on risk?
  • Tolerance: How will you react to market volatility?

Portfolio

  • Use your understanding of your risk level to define a portfolio that will meet your goals.

Portfolio

Want to know what you should buy in your portfolio?

Here are some good sources:

Recommended portfolio would be:

  • Low cost via index funds and/or ETFs
  • Passive investing over active
  • Diversified via broad market funds
  • Per paycheque purchasing of funds
  • DRIP enabled

Still don’t know what to do? Here is one idea (remember I am not a / your financial planner):

  • Decide on your risk tolerance
  • Pick one of the following (depending on your risk tolerance) for large lump sum payments
    • Asset allocation funds
    • Canadian dividends if you want
      • Canadian dividends - VDY
  • If your online brokerage charges you for ETF purchases then consider some of the following for your per paycheque purchases so that you are not paying transaction fees each paycheque

Now automate it:

  • Each paycheque transfer some money into your portfolio accounts (RRSP, TFSA, RESP, etc.).
  • And automatically buy your chosen funds.
  • Make sure that DRIP is turned on so that dividends are automatically reinvested (note that if your online brokerage charges you for ETF purchases then there is a good chance the ETF DRIPs have no trading commissions – check to be sure).
  • Once or twice a year assess to see if you need to rebalance.

Rebalance

You have a target asset allocation based on your risk profile and a number of other factors.

This ends up being a percentage to each of these allocations:

  • Fixed Income / Bonds
  • Canadian Equities
  • USA Equities
  • International Equities

After a few months it is possible that your actual asset allocation has drifted from your target. In this case you have two options.

  • Adjust your per paycheque purchases:
    • If the drift from the target asset allocation is small you can simply adjust your per patcheque purchases.
    • Say that your USA equities are below target, you can then adjust your per paycheque purchases to purchase more of the USA equities to bring you back into your target allocation.
    • This is essence promotes you buying low (USA equities in this example).
  • Sell high and buy low:
    • If one asset allocation (say Canadian equities) has gone up and another is low (say USA equities) then you can sell the high one and use that money to buy the low one.
    • This will get you back into alignment with your target asset allocation.

Appendix

Version History

  Date Notes
01 Mon 30-Jan-2022 Initial version
02 Mon 13-Mar-2023 Second version
03 Fri 30-Jun-2023 Third version
04 Thu 14-Mar-2024 General cleanup
05 Sun 9-Aug-2026 Convert to markdown
06 Sat 22-Aug-2026 Moved content from this page to other pages

TODO / Pending

TODO: Add in FHSA

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