My TFSA is not maxed, I have a few investments but nothing crazy. No GICs either. Should I focus on TFSA first, then GICs? I have a large lump of cash just sitting in a chequing account doing nothing as well.
My TFSA is not maxed, I have a few investments but nothing crazy. No GICs either. Should I focus on TFSA first, then GICs? I have a large lump of cash just sitting in a chequing account doing nothing as well.
It’s too complex a question to quickly answer here, but here are my personal thoughts:
Max out your TFSA first and foremost – the gains are tax free, and the sooner you max them out, the more you’ll benefit from compounding returns. When deciding what to put into your TFSA, put the riskiest stocks/ETFs in your portfolio there – because any disproportionate gains/returns will be tax free.
Afterwards, max out your RRSP to reduce your tax payable annually. If you have a large contribution room, and are gifted or inherit some money, put it all in your RRSP, then only claim enough money each year to lower your tax bracket down one level – this maximizes your deductions. You can also borrow to invest in an RRSP, and the interest costs will be a tax deduction.
This helps, thank you
OTOH the most likely scenario is having mediocre gains, therefore wasting the tax-savings opportunity. Has anybody done the math to compare the performance of high-risk vs steady-returns if both have the same expected average returns? My intuition is that by exercising the tax-free aspect monthly you’re making more in the long run due to compounding but I can imagine this being more complicated than that.
I made $100k on pot stocks in my TFSA, so… maybe my perspective is skewed.
But right now, I have a high-tech ETF with a high distribution that keeps going ‘up and to the right’… I guess only time will tell.
That’s really nice, and I hope you have great gains. But yeah that doesn’t mean that it’s statistically optimal unless you can predictably get right the high risk investments that will go well, in which case you’re on your way to become a millionaire anyway.