How to Optimize Your Canadian Investments for the Year Ahead

Here’s how I would tidy up a Canadian stock portfolio for 2025.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga.

Published December 23, 2024 10:00 am EST

Optimization is great—until it’s not. Over-tinkering with your portfolio can lead to analysis paralysis and unnecessary drag on your returns, thanks to bid-ask spreads and trading commissions. Sometimes, the best move you can make is to simply do less.

That said, I’ve noticed some common mistakes that Canadian investors keep making, especially when it comes to taxes. These errors can quietly chip away at your efficiency and your returns. Here’s a look at two key examples to fix in 2025 so you can optimize your portfolio for the year ahead.

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Keep REITs and bonds in a registered account

Canada’s three main registered accounts—the Registered Retirement Savings Plan (RRSP), the First Home Savings Account (FHSA), and the Tax-Free Savings Account (TFSA)—all share a critical feature: any investment gains earned in these accounts, whether from capital gains, dividends, or income, are sheltered from taxes. You don’t need to file a T5 or pay any taxes on your returns.

With this in mind, it makes sense to prioritize holding non-tax-efficient assets in these accounts. Real estate investment trusts (REITs), like Canadian Apartment Properties Real Estate Investment Trust, or bond funds, such as BMO Aggregate Bond Index ETF, are best kept here.

Why? In a non-registered account, distributions from these assets are often categorized as interest income. Unlike dividends or capital gains, interest income is taxed at your full marginal rate. Keeping REITs and bond funds in a registered account allows you to avoid this tax hit, leaving more money in your pocket.

Buy U.S. stocks and ETFs in a RRSP

Here’s a little-known fact: if you own U.S. stocks—whether directly or through an exchange-traded fund (ETF)—in a TFSA, you’ll lose 15% of the dividends before they even hit your account.

That’s because Uncle Sam and the IRS apply a withholding tax on U.S. dividends, and unfortunately, they don’t recognize the TFSA as a tax-sheltered account. Unfair, right?

The good news is that this doesn’t apply to the RRSP. The IRS recognizes RRSPs as tax-deferred retirement accounts, which means U.S. dividends flow into them tax-free.

So, if you want to avoid losing 15% of your dividends to Uncle Sam, consider converting your CAD to USD and buying something like Vanguard S&P 500 ETF within an RRSP. It’s a simple switch that can save you money in the long run.