By Scott Ronalds

We introduced Emmylou back in March. As a reminder, she’s a fifty-something Winnipegger with a love for yoga, travel and the occasional pale ale.

Emmylou has been a Steadyhand client for eight months now. She holds the Founders Fund across her three accounts (RRSP, Tax-Free Savings Account and Investment Account) and her portfolio has gained about 3.5% since she signed on at the end of February.

With autumn briskly announcing itself in the Peg, Emmylou recently got more serious about planning a long desired excursion to Europe next spring/summer (a trip she thought would wait until retirement). She spoke with her boss and cleared three months for an unpaid ‘sabbatical’. Emmylou has a keen interest in history and has been researching archaeological projects that are looking for volunteers. She’s found sites in Scotland, Spain and Greece that have piqued her interest. Although she hasn’t finalized any details yet, she plans to volunteer at two digs and spend the rest of her time exploring Europe (making her own history).

It all sounds great, except the cost. Emmylou figures the trip will set her back roughly $25,000. She invests most of her savings so will need to tap into her investments to fund the adventure. Two questions jumped to mind: (1) When to redeem the funds? (now, or right before she leaves?) and (2) Which account to redeem from? (Investment Account or TFSA?) She called us for advice.

We recommended that Emmylou set aside the funds now, rather than wait until next spring or when the bills come due, to avoid selling at a potentially inopportune time. We suggested that she switch $25,000 from the Founders Fund (her only holding) to the Savings Fund, and redeem the money from the Savings Fund when required next year. This way, she will still earn some interest on the money (albeit modest) and it will not be exposed to market fluctuations. We noted that Emmylou may earn a slightly higher rate of interest if she were to redeem $25,000 and invest it in a high interest savings account at an online bank (e.g. ING or Ally). She prefers the simplicity, however, of holding all her investments at one firm.

As for which account to redeem from, we recommended she withdraw from her Investment Account rather than her TFSA, as it’s a less tax efficient account and she should aim to keep the maximum amount possible invested in her TFSA. Further, she has a healthy balance in her Investment Account. The redemption will trigger a small capital gain, which prompted Emmylou to question whether it makes more sense to redeem the money from her TFSA. If she did this, her intention would be to replenish her TFSA next year with funds from her Investment Account. We noted that she could trigger a potentially larger capital gain at that point, and a wise option is to therefore redeem from the Investment Account and keep the tax-free account (TFSA) fully invested.

Emmylou digged the advice and is now busy brushing up on her Spanish.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.