# TFSA questions



## chaudi (Sep 10, 2009)

I was reading about this great way to invest tax. But thinking about it, it seems rather bizarre.
So you can contribute $5000 per year and now is 2 years so $10,000, it says you can invest in securities or GIC's.
_
"A wide range of investments can be made in a TFSA, such as, mutual funds, securities listed on a designated stock exchange, Guaranteed Investment Certificates (GICs) and bonds."_


How do you open a TFSA trading account? It would seem that every Canadian investor should take the 10k now and start and investing aggressively in the hope of creating a big tax free bubble. 

If you bubble bursts, say after inflating it to 100k in a few years, you can always fill it with your hard earned cash and now enjoy tax free income from it. So it seems that every stock trader would want to take advantage of to create a big enough personal bubble?


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## Cal (Jun 17, 2009)

Just go to a bank, or whoever you trade with. They will be glad to help you set it up.


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## andrewf (Mar 1, 2010)

I think you need to do some more thinking about investing.


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## humble_pie (Jun 7, 2009)

interestingly, chaudi has stumbled into the jackpot-winning tfsa strategy, which is to motor this small tax-free account into as large a capitalization as possible in as short a time frame as possible.

the problem for many investors is that this requires an aggressive approach with good market timing. At the same time, capital losses are not recognized in tfsas, which means that an aggressively-invested account could fizzle to nothing, while the investor could not even capture a tax loss from the sorry mess.

so the next best strategy is probably the wisest one for most - invest in carefully selected hi yields & grow the account 5-10% per annum on yield alone. Even here, market drops such as the one we're presently experiencing can haircut the underlying investment instruments.

the least useful approach, although it is a popular one, is to treat the tfsa as a temporary savings account, depositing once a year & withdrawing at will. There are minor drawbacks to this approach, such as not being allowed to repay the withdrawn funds until the following year, plus most financial institutions will level excessive withdrawal fees after one annual withdrawal. However, the main setback to this approach imho is the opportunity loss from failure to utilize one or the other of the gain strategies mentioned above.


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## steve41 (Apr 18, 2009)

I am surprised that no one mentioned that the TFSA contribution results in zero tax refund. For the working stiff, depositing money in your RRSP results in a (sometimes significant) tax rebate. When this refund is re-invested, the resulting nest egg can be significantly larger than the TFSA nest egg.

After tax is taken into account of course, the TFSA and the RRSP are pretty much indistinguishable.


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## the-royal-mail (Dec 11, 2009)

steve41 said:


> I am surprised that no one mentioned that the TFSA contribution results in zero tax refund. For the working stiff, depositing money in your RRSP results in a (sometimes significant) tax rebate. When this refund is re-invested, the resulting nest egg can be significantly larger than the TFSA nest egg.
> 
> After tax is taken into account of course, the TFSA and the RRSP are pretty much indistinguishable.


What you say is of course accurate steve, but remember that many of us are using the TFSA as a place to keep our rainy day fund. As you know, rainy day funds must be protected AND must be liquid. Sticking that money into an RRSP adds stress and requires careful consideration when you're in dire straits and in need of cash. Consider a person's head space at that point where having to choose between EATING or paying tax and "losing their investment". This would be quite a dilemna for most people. TFSA avoids that drama and dilemna.

Better to avoid the stress and keep the cash handy. You just never know what can happen.

For those of us who use TFSA in this manner (from what I've read on here there are a lot of people doing just that), investing is the last thing on our minds.


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## steve41 (Apr 18, 2009)

You're correct.... the 2nd 'R' in RRSP is _retirement_. The TFSA is ideal for rainy day contingencies, and can make sense as well, if you don't expect to make it to a ripe old age. When you run the numbers (tfsa vs rrsp), dying early will advantage the TFSA holder's estate (net of tax).


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## DavidJD (Sep 27, 2009)

I don't really see a TFSA as all the great a vehicle for savings or a rainy day fund. You could really do that in a mattress. I see the TAX FREE part as more relevant than the SAVINGS part. This is why I think gambling on stocks (which NOBODY will advise anyone to do) should be done purposefully in TFSA. Especially when the amounts allowed to put in are only $5K/year and we are in year two, which is not a great amount to risk. IF this is your only investment effort and/or you are not in a position to lose (risk) some or most of your $10K, than a more conservative approach is likely the way to go. However despite all the advice in this forum and elsewhere investing is gambling and involves risk. 

At the close of markets today, my wife and I _each_ have $40,680 which grew from $9,984.

Eventually I would like to have all my investments in the TFSA.


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## Mockingbird (Apr 29, 2009)

DavidJD said:


> I don't really see a TFSA as all the great a vehicle for savings or a rainy day fund. You could really do that in a mattress. I see the TAX FREE part as more relevant than the SAVINGS part. This is why I think gambling on stocks (which NOBODY will advise anyone to do) should be done purposefully in TFSA. Especially when the amounts allowed to put in are only $5K/year and we are in year two, which is not a great amount to risk. IF this is your only investment effort and/or you are not in a position to lose (risk) some or most of your $10K, than a more conservative approach is likely the way to go. However despite all the advice in this forum and elsewhere investing is gambling and involves risk.
> 
> At the close of markets today, my wife and I _each_ have $40,680 which grew from $9,984.
> 
> Eventually I would like to have all my investments in the TFSA.


Pretty impressive. 

I've been using it to aggressively grow capital as well.
I wouldn't call it gambling per se - more like calculated risk..


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## DavidJD (Sep 27, 2009)

Mockingbird said:


> I wouldn't call it gambling per se - more like calculated risk..


So we tell ourselves...so many variables at play the term gambling or a euphemism like 'game of chance' do apply.

It is taking a while but I am hoping to see this account surge to between $70,000 and $130,000. At that point (or sooner and at a lower value, if I doubt its rise/timeline) I would like to cash most out and diversify into dividend/distribution generating investments to have a cash flow that is tax free. I would maximize that by adding to RRSPs and RESPs as well as paying down any mortgage left.


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