# TFSA Strategy



## flayto

Wondering what peoples' overall investment strategy is when it comes to investing in a TFSA.

I opened up a trading account through Questrade at the beginning of January and deposited the full $5000. My original intention was to invest conservatively (like buying periodically into an Index ETF), but the last few weeks I have thrown caution to the wind and used it as a sort of "play" account where I make somewhat calculated, speculative gambles on individual companies. Since nothing is ever taxed and commissions are 4.95 per trade, in my opinion the potential upside far outweighs the downside. I don't think I would ever invest the full $5000 in one stock, but maybe purchase in $1000 increments and sell on any up days, and buy on down days. Essentially use it as a day-trading account. 

I started this strategy a few weeks ago with a small amount of shares in Tata Motors and ended up selling on Thursday for a nice $400 profit. 

Just curious what others here are doing and your successes/failures with your strategy so far?


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## seven3

Everyone will obviously have their own preference. However, I think its important to remember that capital losses cannot be claimed in a TFSA.

Also, if you have "another $5k somewhere" earning interest, it's more tax efficient to flip things around and earn interest inside the TFSA. I recommend taking a holistic view of your assets/portfolio.

I do admit that trying to hit a home run in the TFSA is really tempting!

For me personally, I prefer to have my emergency cash in the TFSA, since that would have earned interest anyways...and just trade in a regular non-registered account.


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## FrugalTrader

Here are 4 potential TSFA strategies that I wrote about before, my favorite being creating an income fund as proceeds can be withdrawn tax free. Build the fund large enough, and you can potentially have a signifcant cash free income source during retirement.


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## CheckingIn

I locked my full contribution room into a GIC during the first week of January with BMO. I cannot wait for more contribution room as well! I'm a DRIPper, and I would like to put some of my Income Trusts that pays distributions into my TFSA.


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## The_Number

All of mine is in XSP.TO.


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## Sampson

My strategy is like MDJ's - I've got my highest yielding and most heavily taxed investments in there (2 CAD income trusts and a REIT).

My wife's will hold a bond ETF. 

Eventually, I'd like to use it as a small cap trading account.


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## Financial Highway

I wrote about TFSA Strategies a while ago, I agree with MJD building a large enough tax free income vehicle with it. I mainly try to hold (interest paying and non-Canadian dividend payers)


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## fephoo

I am planning in using the TFSA for income generation also.

Unfortunately, I didn't really know what to do for this year and in november I put my $5000 tfsa money and my wife's $5000 into ING basic saving account TFSAs. I kind of regret... 

Do you think it make sense to open a non-registered portfolio now (probably at questrade) using my current TFSA money from ING ? In this non-reg., I would buy income generating investments. Then next year, I would have a $10000 tfsa room and could use the non-reg. amount (is it possible to switch directly to TFSA or would I need to re-buy) + the rest in $ to hopefully fill the $10000 TFSA ?


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## mfd

Right now my TFSA's accounts are holding cash. Going foward I plan on using it for aggressive growth investing and as I near retirement I'll convert it all to some sort of 5 year bond/gic ladder.


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## Preet

I'm using my TFSA account as a pure gambling account. My RRSP represents the bulk of my long term savings and is mostly indexed with a comprehensive Investment Policy Statement - no thought involved there.

In the TFSA I've been very speculative using 200% and 300% leveraged ETFs for very short runs in and out of the market. So far that has consisted of putting in stink bids and once they fill, I put in a sell order for a 5-10% gain. So far they have worked out well this year. But the account has been cash for 75% of the time - only making those hail Mary's when the underlyings look really oversold/bought.


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## DAvid

Beginning of a GIC ladder.

DAvid


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## ethos1

Preet said:


> I'm using my TFSA account as a pure gambling account.


I recently opened mine in March, I bought BMO.TO, then CC'd at $36 Jan 10. With the money from the option I bought more stock.

With 9-months to expiry and on the assumption my option contract is called, that I am able to collect the quarterly dividends along the way, then end result will be approx 16% over the time or 21% annualized


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## Geron

If you assume that the long-term gains of equities will probably be much larger than interest on cash, then doesn't it make sense to hold those in a TFSA instead of cash?

While cash interest may be taxed at your marginal rate, when you're only earning a hundred dollars, there isn't much tax to save. On the other hand, if your equities portfolio rises by five hundred dollars, you would save more tax in total, even if the tax rate is lower on capital gains.


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## Knight Rider

I opened a TFSA account at Scotia iTrade and plan to begin trading soon. I'm hoping to start off with some day / week trades, but no long-term holds yet.


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## ethos1

again, this is a TFSA related question

Gains or loss have no tax impact, but is interest on money borrowed to put into a TFSA account tax deductable?


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## mfd

ethos1 said:


> again, this is a TFSA related question
> 
> Gains or loss have no tax impact, but is interest on money borrowed to put into a TFSA account tax deductable?



Nope it isn't.


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## Patricia

January 2009 the TFSA's were opened fully funded. For this year it's fixed rate term deposits. For 2010 I'm looking at an initial deposit in each account ( hubbie's and mine) then adding funds over the course of the year.Considering adding a high interest savings account to each TFSA and then decide what's the best investments for the money. Over time I'd like to move most of our interest bearing investments that we currently hold to the TFSA's. As with DAvid this is the start of laddering GIC's/term deposits.


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## CJB

Geron said:


> If you assume that the long-term gains of equities will probably be much larger than interest on cash, then doesn't it make sense to hold those in a TFSA instead of cash?
> 
> While cash interest may be taxed at your marginal rate, when you're only earning a hundred dollars, there isn't much tax to save. On the other hand, if your equities portfolio rises by five hundred dollars, you would save more tax in total, even if the tax rate is lower on capital gains.


Agreed. This is the same argument as allocation outside of a TFSA but the TFSA changes things a bit. I think this has more to do with overall portfolio mix, time horizon and appetite for risk but I think it is a mistake to lock in with GICs now with terribly low yields and overlook blue chip stocks with comparatively high yields. Personally, if you are holding ANY interest bearing investments outside an RRSP it would be wise to move them into the sheltered environment of the TFSA.


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## DrStan

My TFSA and my wife's TFSA each hold 5K of REI.UN (RioCan). This provides a juicy dividend (9.2 % based on our purchase price) and is considered a long term hold for our portfolio. We are reinvesting dividends and will add another 5K each to this position early in 2010. We have actually doubly benefited by sheltering the income from this trust in the TFSA and selling the same position a few weeks earlier in a taxable account to trigger a capital loss. Our long term strategy, based on a conservative 5% annual return, should provide income of $15,000 per year, tax free and in 2009 dollars, starting 25 years from now at retirement.


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## Preet

DrStan said:


> My TFSA and my wife's TFSA each hold 5K of REI.UN (RioCan). This provides a juicy dividend (9.2 % based on our purchase price) and is considered a long term hold for our portfolio. We are reinvesting dividends and will add another 5K each to this position early in 2010. We have actually doubly benefited by sheltering the income from this trust in the TFSA and selling the same position a few weeks earlier in a taxable account to trigger a capital loss. Our long term strategy, based on a conservative 5% annual return, should provide income of $15,000 per year, tax free and in 2009 dollars, starting 25 years from now at retirement.


@DrStan - While I have not seen it specifically ruled on, I think your capital loss claim could be denied under the superficial loss rules. I know you cannot sell a security at a capital loss and then re-purchase the same security within 30 calendar days within an RRSP and claim the capital loss, and I imagine the same will hold true for a re-purchase in a TFSA.


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## DrStan

Hi Preet,

You would be correct. Superficial loss rules would likely apply to such a move. That's why I waited just over the 30-day limit to make sure.

Cheers!


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## Cammac46

*TFSA-Tax Free Savings Account-How will you use yours?*

Our new TFSA idea to me a very interesting new feature offered by Revenue Canada and I for one will be using it as I beleve it can benefit taxpayers with the savvy to use it to their advantage...So, how are you using your TFSA account? Share your ideas here!
I haven't started yet myself but here is my plan for my future TFSA. I intend to setup my TFSA with an online broker and investing $5,000 in possibly 3 or 4 fairly high risk stocks. I say high risk because many people would probably say I am crazy buying some of the stocks I do...however high risk can also bring very high returns. Yes, I will be going after 5x or 10x baggers and right now with the markets near bottom(I hope) there is a good chance of big rewards. Playing it right could result in huge tax free gains rather than playing stocks in an RRSP and then paying tax on it when you cash them in.
Yes, it's a gamble...I like the odds! I did a similar thing in 1999/2000 and went (my ex and I) from $16,000-$229,000 in 7 months...(then separation and divorce took care of that...long story). That period was short term investing and even quite a few day trades. The $229,000 would have been taxed in our RRSP's at the time, Now with the TFSA....those kinds of gains will not be taxed...I love the idea...now, share your ideas!
Cam


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## TaxFreeSavingsAccount

There are a few information articles on TFSA strategies that I recommend.

Million Dollar Journey and The Wealthy Boomer are two reliable site sources. I would check there for the latest news and views.

*TFSA ARTICLES*

*TFSA Through the Ages*
http://ezinearticles.com/?TFSA-Through-the-Ages&id=1861872

*TFSA for Real Estate Investing*
http://ezinearticles.com/?Using-a-TFSA-For-Real-Estate-Investing&id=2178261

*TFSA and the HELOC*
http://ezinearticles.com/?Home-Equity-Line-of-Credit---The-What,-the-Why-and-the-TFSA-Option&id=2178277

*TFSA and Universal Life Accounts*
http://ezinearticles.com/?Universal-Life-Accounts-and-TFSAs&id=2178246

*The Best TFSA Investment Strategy*
http://ezinearticles.com/?The-Best-Tax-Free-Savings-Account-Investment-Strategy&id=1964118

*Independent Tax Free Savings Account Review*
http://taxfreesavingsaccountinfo.com/tax-free-savings-account-review/

Hope this helps!


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## Rickson9

flayto said:


> Wondering what peoples' overall investment strategy is when it comes to investing in a TFSA.
> 
> Just curious what others here are doing and your successes/failures with your strategy so far?


At the end of Feb/beginning of Mar, my wife and I purchased as much Fossil (FOSL) and The Buckle (BKE) stock that the TFSAs could hold. 

Our goal with all our stock accounts it to purchase profitable companies that have the least chance of requiring us to sell.

Although unsustainable, we are up over 30% in a couple months. We don't intend to sell and we don't feel that this kind of appreciation will continue over time.


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## refutor

DAvid said:


> Beginning of a GIC ladder.
> 
> DAvid


I'm going the GIC ladder route as well...


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## jambo411

We have been selling off our Income Trusts for a loss and waiting the 31 days
and rebuying them in the TFSA. Most of the income trusts that we hold have reduced the return of capitol and are now largely other income. Some of the REITs I believe still have a some return of capitol and therefor are tax advantaged. We will hold them outside the TFSA. We are also using DRIPs when available.


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## cardhu

Cammac46 said:


> Our new TFSA ... I will be going after 5x or 10x baggers and right now with the markets near bottom(I hope) there is a good chance of big rewards. Playing it right could result in huge tax free gains rather than playing stocks in an RRSP and then paying tax on it when you cash them in.
> 
> I did a similar thing in 1999/2000 and went (my ex and I) from $16,000-$229,000 in 7 months ... That period was short term investing and even quite a few day trades. The $229,000 would have been taxed in our RRSP's at the time, Now with the TFSA....those kinds of gains will not be taxed...I love the idea...


Bit of a misdiagnosis there, I'm afraid ... the best that a TFSA can do is tax-free investment returns ... but RRSPs can provide better-than-tax-free returns (ie. negatively taxed returns), when the applicable tax rate on withdrawal is lower than the marginal tax rate on contribution ... granted, if you drew $229k out in one fell swoop, you’d likely not enjoy a lower tax rate, but if you drew it out in retirement, you might (the vast majority of people do face a lower tax rate on withdrawals than on contributions).

Example ... that $16,000 starting figure in the RRSP would only have been $10,000 in the TFSA, because you would have had to pay tax on your income, instead of claiming a $16000 deduction (assuming a 37.5% marginal tax rate on contribution) ... therefore, if that money had been in TFSA, it would only have grown to $143,000, instead of $229,000 ... sure you pay tax on the $229k when it is withdrawn from RRSP, but as long as the applicable tax rate is 37.5% or less, then you’re equal to, or ahead of, where you’d have been with the TFSA. It is definitely a boon to those who are savvy to use it to their advantage. 

The TFSA is a good thing, but the idea that it is superior to the RRSP is grossly overblown, when the intent is to generate retirement income. Of course, if the intent was to withdraw $143k after tax, and buy a Ferrari (can you get a Ferrari for $143k?), then the TFSA would be preferable because RRSPs are not well-suited to large lump sum withdrawals.


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## Retired at 31

cardhu said:


> if the intent was to withdraw $143k after tax, and buy a Ferrari (can you get a Ferrari for $143k?),


Yeah, you could, but the nice ones are 200k


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## Cal

I would like to buy Arc Energy Trust AET.UN and set up a DRIP. Does anyone know anything about doing this?

I use TD Waterhouse as my brokerage, and already DRIP ENB through a non registered account so I am familiar with the process.

If I buy 5K of AET.UN through a TD TFSA (which will clearly show a record of a 5K transaction), is it the same process to get the share registered (ie: buy a share certificate)?

And then the next question is, next year, when I go to buy another 5K, do I send the cheque to Computershare ? (aware that the SPP maximum monthly purchase is 3K for AET.UN, so I know this would have to be purchased over the course of 2 months)

I just want to get my fractional shares....


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## Cal

Sorry, if I wasn't clear.....

I want to set up a holding of AET.UN within my TFSA. As I understand it I would transfer $5000 into the TFSA, then would purchase roughly $4970 worth of AET.UN, with approximately a $30 transaction fee. I believe I can order the share cert. and pay for that with money outside of the TFSA, as it isn't part of the investment, it is merely needed to register it under myself.

From that I would obviously be able to contact Computershare to set up the DRIP. I was just wondering if anyone else out there had set up a DRIP within their TFSA, and if so how the process went.

Which then makes me wonder a year ahead, as if the DRIP is set up, then I could use the SPP to purchase next years $5000 TFSA limit also, avoiding the $30 transaction fee through TD Waterhouse. (and I know that AET.UN has a $3000 SPP monthly maximun, so it would have to be done over the course of 2 months) But for tax purposes, how would Revenue Canada know that the intention of the 2nd years $5000 was to be held in the TFSA?


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## Cal

Ok, so the TFSA can only hold a synthetic DRIP.....too bad that it can't hold a traditional DRIP, it would have been nice to get the fractional shares.

I was considering holding 5K of AET.UN, as it does make sense to hold a trust inside the registered account. But I don't think that TD Waterhouse will give me the additional 5% discount that AET.UN offers on their DRIPped shares. Which also sucks.....any advice out there?

Is anyone DRIPping any stocks in their TFSA? Which ones?


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## Big J

*Stock option flipping in TFSA?*

I have stock options with the company I work for. Can I buy a few in my TFSA then sell them, and then repeat the process to avoid the tax of flipping them conventionally? Only downside I can think of would be the trading fees from my broker.


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## Robillard

Big J

In general, when you contribute securities to a TFSA there is a deemed disposition of those securities. So, if there are unrealized capital gains on your options, I believe that you are expected to pay capital gains tax as if you had sold the options at the relevant price on the date of the contribution. You do not get an offsetting deduction for capital losses (to use against any other capital gains) from such a deemed disposition. 

Please also note that the TFSA is not intended hold securities of companies to which you do not have an "arm's length" relationship. If you are a significant shareholder, a director or are in senior management of the company for which you work, then this might imply that you do not have an arm's length relationship. In that case, if you went through and contributed the options, you would be expected to pay the full tax on any gains.


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