TFSA returns to date

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
User avatar
cannew
Contributor
Contributor
Posts: 348
Joined: 17 Mar 2010 10:59

Re: TFSA returns to date

Post by cannew »

Priority in a TFSA should be to Canadian fixed income products.

George
Why fixed income as a priority? Fixed income provides no income growth and the capital looses value because of inflation or am I missing something?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33399
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: TFSA returns to date

Post by AltaRed »

If one is going to hold fixed income as part of one's asset allocation, George's point is that it is best held in the TFSA (interest is fully taxed as Other Income and US withholding taxes are lost). What part of that is a mystery?

There is a counter argument though that says if you put your highest growth assets in a TFSA, the non-taxable nature of those gains overwhelms both of the effects above. That however assumes one can virtually guarantee they put the right assets in the TFSA to begin with. And as we know with Japan, that isn't always so. There is nothing saying that Canada and/or USA could end up in the same place in the not so distant future.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: TFSA returns to date

Post by deaddog »

AltaRed wrote:If one is going to hold fixed income as part of one's asset allocation, George's point is that it is best held in the TFSA (interest is fully taxed as Other Income and US withholding taxes are lost). What part of that is a mystery?

There is a counter argument though that says if you put your highest growth assets in a TFSA, the non-taxable nature of those gains overwhelms both of the effects above. That however assumes one can virtually guarantee they put the right assets in the TFSA to begin with. And as we know with Japan, that isn't always so. There is nothing saying that Canada and/or USA could end up in the same place in the not so distant future.
It is the perfect instrument for traders.
No superficial loss rule.
No tax on cap gains.
Much easier to compound gains.
You can pull cash out and replace the next year.

I think you should look at the tax savings not the tax efficiency. If all your assets returned the same amount then fixed income may be the most efficient, but I would place the asset that I paid the most tax on in my TFSA
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
User avatar
IdOp
Veteran Contributor
Veteran Contributor
Posts: 3873
Joined: 16 Feb 2006 11:27
Location: On the Pacific sea bed, 100 mi off the CA coast.
Contact:

Re: TFSA returns to date

Post by IdOp »

Fixed income provides no income growth
This is a myth. The growth is achieved by reinvesting some or all of the income. At today's rates the growth may be low, but as a general point I think it's worth understanding.
User avatar
cannew
Contributor
Contributor
Posts: 348
Joined: 17 Mar 2010 10:59

Re: TFSA returns to date

Post by cannew »

IdOp wrote:This is a myth. The growth is achieved by reinvesting some or all of the income. At today's rates the growth may be low, but as a general point I think it's worth understanding.
Reinvesting the interest earned is not growth. However, if a dividend is increased, that's growth because the income is higher than before with no further investment
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: TFSA returns to date

Post by Shakespeare »

Reinvesting the interest earned is not growth
Yes it is, because of compounding. Compounding at today's interest rates may be very slow, but is still non-zero.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
longinvest
Veteran Contributor
Veteran Contributor
Posts: 3956
Joined: 10 Sep 2012 17:26
Location: QC

Re: TFSA returns to date

Post by longinvest »

Shakespeare wrote:
Reinvesting the interest earned is not growth
Yes it is, because of compounding. Compounding at today's interest rates may be very slow, but is still non-zero.
To me, my TFSA seems to be growing. Yet, between July 31, 2014 and July 31, 2016, my TFSA was filled with bonds (VAB). I've calculated its internal rate of return and found that it was 6% per year over this two year period. Not too shabby for an investment into "[F]ixed income [which] provides no income growth". :wink:
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
User avatar
IdOp
Veteran Contributor
Veteran Contributor
Posts: 3873
Joined: 16 Feb 2006 11:27
Location: On the Pacific sea bed, 100 mi off the CA coast.
Contact:

Re: TFSA returns to date

Post by IdOp »

cannew wrote:Reinvesting the interest earned is not growth. However, if a dividend is increased, that's growth because the income is higher than before with no further investment
Remember though that the dividend increase -- speaking generally -- is due to the company having reinvested some of their past business income into the company, and growing that way, which eventually leads to higher dividends. With directly held fixed income, there is no manager in between you and the income ... in effect you are like the company managers, and you can make the decision to reinvest the income. When you do that, all else being equal, you will own more and more fixed income product which will generate more income ... as Shakespeare said: compounding.

In saying "all else being equal", it's true that if interest rates on what you own generally drop a lot you could have less income being given off despite the compounding; or it could be more if rates go up. This should even out over longer times.

I took a look at my VAB holding which I DRIP in a registered account. Despite the general drop in interest rates in the last few years, I found the income has been rising, albeit slowly. The nice returns on VAB that longinvest reports would be largely due to capital gains on bonds when interest rates drop I would think.
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: TFSA returns to date

Post by Thegipper »

Thegipper wrote:Both my spouse and myself have contributed the maximum annual amount to our TFSA since day 1. Mine has a total of 81k and her account has a total of 74k. We have basically purchased solid little small caps that pay solid dividends and have good metrics and growth. We each have abut 12k in corporate bonds. I figure we can continue to contribute for 2 more years at which time we should have close to 200k combined. Would be curious how others have made out. I haven't made a million but I am satisfied with our results to date. I am always looking for the small caps with good metrics. Savaria, MTY, MAL,CAO and AD on on my list this year. I have avoided any commodity or energy stocks. If you have made a million please keep it to yourself CRA may be monitoring.
Its been a good summer. My TFSA is sitting at 92k and my wife"s is at 80k. I have pretty stuck to small caps which aren't followed or have very little coverage. I have avoided the materials and energy sectors. I love our TFSAs . I didn't think much of them in 2008 I have changed my opinion and think they are an excellent vehicle for an individual to invest and participate in the Canadian economy.
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: TFSA returns to date

Post by Thegipper »

Thegipper wrote:Both my spouse and myself have contributed the maximum annual amount to our TFSA since day 1. Mine has a total of 81k and her account has a total of 74k. We have basically purchased solid little small caps that pay solid dividends and have good metrics and growth. We each have abut 12k in corporate bonds. I figure we can continue to contribute for 2 more years at which time we should have close to 200k combined. Would be curious how others have made out. I haven't made a million but I am satisfied with our results to date. I am always looking for the small caps with good metrics. Savaria, MTY, MAL,CAO and AD on on my list this year. I have avoided any commodity or energy stocks. If you have made a million please keep it to yourself CRA may be monitoring.
It's been a great year so far. My TfSA account is now sitting at 105k. My wife is at 81.5k. They are up about 31k since May. CHR and Cargoget are up over100%. Andrew Pellar and MTY are up over 50%. I have moved into TOY recently and it is behaving quite well. Took a position with AGT foods. My TFSAs accounts are almost all small caps. Very few have any analyst coverage. They have strong revenue and earnings growth. I love stocks that have a ROE in the 20% and up range. I have two more years of contributions and I will then start to withdraw. I m thinking I should have a least 250k by then. My wife's account has not preformed as well. About 20% of her account is corporate bonds. I am learning to add more to stocks that are doing well. Diversification has some drawbacks. We have about 16 stocks combined . Unless I can find something new that looks really strong I stick with the ones I have.No oil and gas stocks. No financials or materials.
simplesimon
Contributor
Contributor
Posts: 26
Joined: 29 Dec 2016 17:40

Re: TFSA returns to date

Post by simplesimon »

Interesting thread.

I obviously fall into the category of low performer, 60.5K and 63K for me and my wife respectively, although our TFSA's are built the same as the rest of our investment accounts, somewhat balanced.

Probably mentioned already, but no TFSA account has been subject to a real market correction yet, so I have to wonder how well the high performers will fare longer term.
User avatar
cannew
Contributor
Contributor
Posts: 348
Joined: 17 Mar 2010 10:59

Re: TFSA returns to date

Post by cannew »

Year end 2016 market values, mine $75k, wife's $79k, but as usual I'm more interested in the income we produce, which is reinvested. Currently dividends are $7,600 per year.
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: TFSA returns to date

Post by Thegipper »

My wife's is at 81k and mine is his at 99k. . Her account grew by 9% in 2016 and mine grew by 36% . The difference was more a function of luck then management.I have my eye on 3 or 4 microchips for new money. Small caps have been been the best performers in my TFSAs.
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: TFSA returns to date

Post by Thegipper »

Thegipper wrote:My wife's is at 81k and mine is his at 99k. . Her account grew by 9% in 2016 and mine grew by 36% . The difference was more a function of luck then management.I have my eye on 3 or 4 microchips for new money. Small caps have been been the best performers in my TFSAs.
December wasn't kind to my TFSA. Have been thinking of becoming more conservative and defensive and start using the accounts to top up our retirement income.The problem is finding investments that are defensive. Interest accounts that pay 1.5% don't get me to excited.
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: TFSA returns to date

Post by kcowan »

Returns in 2016:

Me 17.3%
DW 31.4%

I just got serious about these this year.
For the fun of it...Keith
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: TFSA returns to date

Post by Thegipper »

If you are reading this thank you Stephen Harper. TFSA ,income splitting and changing the withdrawal date for my RIIF to 71 have been very beneficial to me and my wife.
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: TFSA returns to date

Post by kcowan »

and a TFSA contribution of $10,000 for one year...
For the fun of it...Keith
User avatar
poedin
Veteran Contributor
Veteran Contributor
Posts: 2614
Joined: 27 Nov 2008 13:20

Re: TFSA returns to date

Post by poedin »

We started with GICs - chasing the best rates available. A few years ago I realized it was time to consolidate at one brokerage (to be completed by next January) and also added some equities one year ago. Doesn't change our overall asset allocation, yet more balanced across the different investment vehicles with an eye to better tax efficiency. Thanks to FWFers & finiki ! :thumbsup:
User avatar
cannew
Contributor
Contributor
Posts: 348
Joined: 17 Mar 2010 10:59

Re: TFSA returns to date

Post by cannew »

Thegipper wrote:If you are reading this thank you Stephen Harper. TFSA ,income splitting and changing the withdrawal date for my RIIF to 71 have been very beneficial to me and my wife.
+that and it reduced our taxes on withdrawals by $10k.
cardhu
Contributor
Contributor
Posts: 726
Joined: 05 Mar 2005 21:07

Re: TFSA returns to date

Post by cardhu »

TFSA is the third-string player on my bench. Its nice to have, but it really doesn't make any difference what its returns are, it isn't big enough to make any meaningful difference in the grand scheme of things.
AltaRed wrote:If one is going to hold fixed income as part of one's asset allocation, George's point is that it is best held in the TFSA (interest is fully taxed as Other Income and US withholding taxes are lost). What part of that is a mystery?
The part where it is viewed as correct … the fact that interest income is taxed as ordinary income (it is not “Other Income”) does not mean it is the best candidate to occupy valuable shelter capacity. This is one of those rules of thumb that is so ingrained that people seem to accept it as correct, without even bothering to evaluate the alternatives … as long as one has unused TFSA contribution room remaining, then fixed income is fine in TFSA, but where one’s portfolio spills over into a non-reg account, in addition to both TFSA and RRSP, it is not necessarily optimal to shelter the fixed income.
AltaRed wrote:There is a counter argument though that says … you put your highest growth assets in a TFSA, … That however assumes one can virtually guarantee they put the right assets in the TFSA to begin with.
No, it doesn’t … there are no guarantees necessary, only probabilities … and since the TFSA is the ultimate “forever” investment (ie. never to be drawn from, unless and until it is the last asset one owns), then probabilities favour the use of equities … if interest rates rise sufficiently that this conclusion reverses, there are no barriers to making changes, simply shift equities out and fixed income in, with no tax implications whatsoever … but with fixed income rates as low as they are, it is absurd to suggest that they are the “best” investment for a TFSA.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33399
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: TFSA returns to date

Post by AltaRed »

I can agree with all that, assuming one can pick the right assets to put in the TFSA. The risk is that capital losses, if incurred, are lost, as are any US withholding taxes. What one puts in the TFSA can be quite situational. Some need (can) use it as an Emergency fund (even plain old savings for future purposes) in the absence of any other resources to do so, some use it to keep their fixed income component, and others use it for porfolio growth (but with the risks above in mind). There is no single right answer.

I used to shelter fixed income in the TFSA in the form of a GIC ladder to shelter interest income. I no longer do that since I suspect I will never need to touch my TFSA (it will be a legacy), and now use it exclusively for REITs which I will hold indefinitely.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Koogie
Veteran Contributor
Veteran Contributor
Posts: 3972
Joined: 09 Mar 2012 16:44

Re: TFSA returns to date

Post by Koogie »

I eventually smartened up as well and abandoned HISAs in my TFSA and embraced utilities and REITs. Slow, steady and hopefully predictable.
This account will be untouched for many decades (we do plan to spend it down one day) and I want good stable growth over that time. To me, interest bearing instruments would be a waste of time (at foreseeable rates anyway) and home run stocks to risky for the valuable opportunity the space represents (I'm not much of a trader anyway). YMMV.
2of3aintbad
Contributor
Contributor
Posts: 72
Joined: 04 Jan 2016 10:55

Re: TFSA returns to date

Post by 2of3aintbad »

AltaRed wrote:I can agree with all that, assuming one can pick the right assets to put in the TFSA. The risk is that capital losses, if incurred, are lost, as are any US withholding taxes. What one puts in the TFSA can be quite situational. Some need (can) use it as an Emergency fund (even plain old savings for future purposes) in the absence of any other resources to do so, some use it to keep their fixed income component, and others use it for porfolio growth (but with the risks above in mind). There is no single right answer.

I used to shelter fixed income in the TFSA in the form of a GIC ladder to shelter interest income. I no longer do that since I suspect I will never need to touch my TFSA (it will be a legacy), and now use it exclusively for REITs which I will hold indefinitely.
As for picking the right assets, that is never straight forward. So I prefer to spread the risk over various asset classes over TFSA / RRSP / Non-registered accounts, depending on my time horizon. I hold a number of REITs, but in my RRSP, because I expect to convert to a RRIF soon. In my TFSA, I have some emerging market, precious metal stock and actively managed ETFs, as well as the traditional North American equity ETFS. Each will have their day in the sun, and I am not forced to make any minimum withdrawals. It is the young people that have the advantage (over me) of many more years of TFSA contributions.
cardhu
Contributor
Contributor
Posts: 726
Joined: 05 Mar 2005 21:07

Re: TFSA returns to date

Post by cardhu »

AltaRed wrote:What one puts in the TFSA can be quite situational. … There is no single right answer.
Yes, that is precisely the point I was making ... it is also a 180 degree reversal of your earlier, rather definitive statements … “fixed income is best held in TFSA. What part of that is a mystery?” I realize you were describing George’s point, not your own, but that last bit seemed to suggest that you agreed with it. Thus, my explanation as to which part was the mystery.
AltaRed wrote:I can agree with all that, assuming one can pick the right assets to put in the TFSA. The risk is that capital losses, if incurred, are lost …
We’re not talking about roulette, here … with sufficient time and diversification, that risk can be effectively mitigated … time is the key, and since TFSA is the ultimate long-term hold, there is less prospect of long-term loss in this account, than in any other. Again, it’s not a matter of guarantees, it’s a matter of probabilities.
AltaRed wrote:some use it to keep their fixed income component, and others use it for porfolio growth
People do all kinds of things, for all kinds of reasons … but not necessarily the right reasons … you can’t make something the “best” choice, merely by choosing it.
cardhu
Contributor
Contributor
Posts: 726
Joined: 05 Mar 2005 21:07

Re: TFSA returns to date

Post by cardhu »

2of3aintbad wrote:It is the young people that have the advantage (over me) of many more years of TFSA contributions.
For me, TFSA wouldn’t have been particularly advantageous, even if it had existed when I entered the workforce. In fact, it may have been a disadvantage (for me). If it had distracted me from making RRSP contributions, I would have ended up substantially poorer (on an after-tax basis) than I am. The TFSA is a nice addition to the toolbox, but it is not the panacaea that many make it out to be.
Post Reply