Sunday, 28 December 2014


TFSA - Tax Free Savings Account, it sounds simple enough, and it really is. It's a type of savings account that is exempt from tax. You can use it for investments in stocks and bonds, or as a cash deposit account. All gains are tax exempt and all losses are not eligible for tax deductions. There is an annual contribution limit of CAD$5,500.

So how best to utilize it? A high risk/reward or low risk/reward investment strategy? Myself personally, am investing aggressively for two reasons. I'm young and can afford to take a financial hit if things go wrong and high profits in a tax free environment mean greater returns. But whether you choose an aggressive approach or a conservative one is something I could not care less about.

What I do care that you do is not use it as a storage space for cash. Do not put cash into a TFSA and let the bank give you 1% compounded monthly. Inflation was about 2% for 2014. Bond yields are between 0.96% and 2.55% at the time of writing. An ETF that tracks debt issues will provide a dividend upwards of 2% - on a monthly basis. $ZMP has a dividend of 3.32% - paid monthly.

Now I'm not saying use your TFSA to day trade leveraged inverse ETFs. But I am urging you to harness the power of your TFSA. Put some of your savings in a low risk investment vehicle. Don't let inflation devalue your savings.

No comments:

Post a Comment