This article has 28 comments

  1. I entered the contest although I don’t consider my performance to be anything special. I simply followed a steady plan like you describe. Because of my portfolio allocation, the TFSA happened to hold a good asset class (not as good as Canadian REITs). Despite what I consider to be thoroughly unexceptional results, I had someone at a credit union express disbelief at the account balance last week.

  2. Canadian Capitalist

    @Richard: I agree with you that growing the account to $30K or $35K should be the average experience. Those who bought any Canadian stock (other than resources) would likely have done much better than the TSX 60. That said, we do know that even achieving average returns is a challenge for most investors, so perhaps that explains the incredulity you encountered.

    @Mike: Sorry to hear about your TFSA experience. Perhaps you’ll conclude as I did years ago that returns from stock picking was mostly luck. The way forward then is very clear, isn’t it?

  3. Very interesting results.

    I would hardly say that the full amount invested into a single investment vehicle should represent an ‘average’ result. Concentrating the TFSA holdings will surely have given then best returns and we could always cherry pick a few better options post-hoc.

  4. Sampson, it is true that a couple of examples don’t make a general statement. However given that most asset classes have performed better than Canadian stocks and bond returns have only turned negative this year, someone who contributed the maximum to their TFSA at the start of each year and used diversified funds with low fees could hardly expect to be showing a loss at this point regardless of what their asset allocation is.

    The minimum amount mentioned for this is a total return of 18%. In a rewarding market like the one we’ve had for the last few years the only people who wouldn’t have a chance to come close to that are those who thought it was actually a bad market and stayed out.

  5. Great article CC. I had no idea, even with the recent downturn, REITs did THAT well. Geez.

    I’ve got FTS in my TFSA, just below the $30 K mark.

  6. I’m not sure I completely follow your point Richard.

    We know from the first few years of records that most Canadians actually put cash or cash equivalents into the TFSA and many of us speculated (if I recall, CC also) that the unfortunate name of the TFSA led many to put cash in their (well that and we had just experience a major crash in the equity markets).

    The average return really should reflect what people have purchased, and I’m not even partly convinced that the majority of TFSA users have invested fully into Canadian equities.

    I have always been convinced that returns in the TFSA should be abnormally high since they benefited from advantageous sequence of returns. Average return on the Canadian market might now be 18%, but during the first few years, that number was 30-40%.

  7. I’m a hair over $32k but can’t imagine it’d be worth contacting them — they likely should have set that lower bar a bit higher. I even had a big YLO loss in there, but the REITs and S&P500 index fund still pushed it up.

  8. Cash would drag down the returns. I have never thought of the TFSA as a savings account so I don’t consider that option.

    So I would say that anyone who has used their TFSA for equities and hasn’t taken a very concentrated position or paid high fees has a good chance of being around $30k+.

  9. Pingback: A Better Friday and #CPFC13

  10. Canadian Capitalist

    Our TFSAs are in the low 30s from a mix of XIU and REITs held directly. Nothing exciting, so there is little to share.

    Sampson makes a good point about cash. My understanding is a lot of Canadians have taken “savings” to mean literally — i.e. it’s a savings account — and stashed mostly cash into it. Last year, CBC did a story that said more than half of TFSA account values are parked in fixed income at the big banks. It’s a good bet then that a majority of TFSAs are less than $30K.

    http://www.cbc.ca/news/business/taxes/tax-free-savings-accounts-are-flexible-convenient-but-underused-1.1183347

    • It was my recollection/impression that the banks marketed TFSAs from this aspect: as a vehicle to “safely” save money without having to pay tax on the interest, nevermind that inflation will essentially eat the interest earnings and more in this low interest environment.

      Everyone needs to have a certain amount of emergency cash in savings, but after that need is met, then further savings have to be invested so that at least there is no portfolio erosion due to inflation.

  11. My approach was to invest in dividend paying stocks under $10/share. Most dividend yields are about 5-7%…reinvesting the dividends + capital gain has taken $25,000 to about $44,000.

    • Hi Jim, I completely agree with you on the under $10 shares, 5~7% dividends and capital gains as this has been my approach over many years and my hair should be gray. Several other suggestions are looking for those equities that get hit down suddenly that will rise afterwards, putting in gtc bids both for buys and sells to take the feelings out that cause us to wait and lose the gains. There are also some equities under $10 that are blue chip material and covered puts and calls will bring a good return irrespective of the low interest rates.

    • Hi Jim, I completely agree with you on the under $10 shares, 5~7% dividends and capital gains as this has been my approach over many years and my hair should be gray. Several other suggestions are looking for those equities that get hit down suddenly that will rise afterwards, putting in good to cancelled bids both for buys and sells to take the feelings out that cause us to wait and lose the gains. There are also some equities under $10 that are blue chip material and covered puts and calls will bring a good return irrespective of the low interest rates.

  12. Can you update this article once or twice a year, for all 3 sectors, it would be interesting to compare from year to year.

  13. @CC
    “The way forward then is very clear, isn’t it?”

    It is or at least it should be :).

    I read somewhere that wise people learn from other people’s experience, and smart people learn from their own experience.

    I am not a wise man for sure and it seems neither a smart man.

    – No penny stocks
    – No commodities, I’ll make here an exception for oil
    (uranium was a nice success story for me until Fukushima)
    – No tech companies (except Apple, MSFT, Intel, but I shouldn’t make any exceptions due to the lessons of AMD and STEC and BlackBerry)
    – Lots of real estate (too much I would say), I don’t want to buy apartments to rent but I like having a very, very small ownership from many of them through REITs
    – ETFs are good (unless they cover specific developing countries, eg. ETF for India, China, Vietnam, etc.)
    – Vanguard is good; I am in process of replacing the TD eFunds with Vanguard ETFs (I should have done it much earlier but they were under in my RRSP, it should have not mattered, the corresponding ETFs were low too)
    – Big companies are good (McDonalds, Starbucks, Pfizer, WM) until they are not so perhaps I should get rid of them and buy more Vanguard ETFs
    – Buying distressed companies could be a winning proposition but have I very mixed results so better not (BP and Transocean bought after the oil spill, Nortel, BlackBerry, and Nokia – BP and NOKIA good, Transocean under not much, but under, BB very, very bad, and Nortel no comments)
    – Berkshire is very good as it is a kind of ETF but what would happen after Warren Buffett (who would have thought AIG would need to be bailed out and the shareholders wiped out in the process or other cases where individuals brought companies down for example Barings the oldest bank in England)

  14. Canadian Capitalist

    @Jim: Congratulations. You may want to contact MoneySense if you are interested in sharing your story.

    @Cal: Yes, I will update this post a couple of times a year. Updating posts is great. It’s less work for me 🙂

    @skeptical investor: Sounds like a good plan. I invest slightly differently. I work from a small menu of investments (mostly ETFs) and I think long and hard before adding anything to the list.

  15. I kept it very simple: $1000 each month for the first five months (or so) of the year into ING Street Wise Balance growth mutual fund. Now at $31,800 from a total investment of $25,500.

    • Canadian Capitalist

      @Bernard: Bravo! You may have a simple plan but sticking to it takes a lot of discipline. Well done.

  16. I forgot to add Toyota to my ‘strategy’ of buying distressed companies.

    After the scandal of the faulty brakes and other issues TM kept going down. I bought at around $80 and the stock went even lower but then recovered and hovered around $80 for some time. Lost my patience and after 1 year sold it at a price very close to the purchase price. I even made around $5 profit.

    Then who would have thought that BoJ would borrow a page from Feds book and start the money printing presses. The Nikkei started its ascension the very next month I sold TM, and I just checked, the stock is $127.

  17. Mine is at $111K, but that does not count the $178K I have taken out.

  18. Ended the year with the TFSA at $122903 … I think it will be a good year for the venture exchange, so almost fully invested in junior oil and tech companies.

  19. First quarter went really well … ended up 36%, took $22K to pay for some trips, etc, currently sitting at $146K

  20. I love options, I use both weekly and monthly versions. I only started 3 months ago and have doubled my investments. It’s the best way to leverage. I am young however so the speculative style fits as I have many years to make up losses. Be prepared to be down 75% one day and up 120% the next. It’s not for those that panic easily. For those investing, try investing in fields that you know well and are familiar with. I wouldn’t touch an oil stock as I have no idea of the various factors involved in those companies. I do however almost strictly work with the tech industry which won’t work for everyone. Just find your own style and you’ll do a lot better than following a herd blindly.

  21. I am a dual Canadian/US citizen, have only one residence which is in Canada, and am running into US FATCA interference. My financial advisor has recommended I drop out of holding a TFSA because it is viewed as a trust in the US with different tax reporting implications.

    I plan to do my own US taxes and use strategies to minimize my US obligations, but this kind of planning is hard to find. About a quarter of my portfolio is in US municipal bond fund etfs (US muni bonds are tax-free investments). After contributions over the years, my $31,500 TFSA investment is now at $41,000. Any suggestions on how to make the TFSA work from the US tax perspective?

  22. What about the CRA cracking down on the TFSA accounts guys? It would be interesting to have clarification on this issue if as they say we make to much or trade to much and they consider us differently. My personal opinion is that everyone should be treated the same like medicare regardless of income, financial knowledge or trading activity in the TFSA.

  23. My understanding is that it’s only professionals that they are cracking down on. If you pay regular income on gains outside your TFSA instead of capital gains, then expect to have your TFSA treated as an extension of your business (perhaps unless you invest passively within it). If you’re a non-professional and paying capital gains in your non-registered, then your TFSA should be fine even if you trade frequently.