Guest Blog | September 11, 2020 at 12:56 pm
If you don’t start growing soon, I’ve been doing some soul searching on Amazon and those self-help purchases aren’t going to pay for themselves.
Sincerely, Your Cash Cow
If you’re annoyed with the fact that your TFSA (Tax-Free Savings Account) isn’t growing, this is for you.
Let’s start off by addressing your feelings. Your annoyance, although valid, is a tad misplaced.
Technically, your TFSA doesn’t do the growing at all. Technically, you’re annoyed with what’s happening (or not happening) inside your TFSA.
Think of it this way. Your TFSA is like a house. And like a house, it protects the stuff inside from the stuff outside. What’s inside being your money and what’s outside being taxation.
And that money can grow or not grow depending on what type of investment you chose to invest your money in. Investments come in all shapes and sizes but if I had to sum it up in one sentence: some focus on safety while others focus on growth.
If the investment’s goal is to keep your money safe, while it won’t grow a whole lot, it will protect your money from losses when the markets go crazy. Ahem, like when a pandemic hits, for example.
On the flip side, if the investment’s goal is to grow, then you will experience some of those higher returns, but won’t be as protected from losses when the markets go nuts.
The growth investment motto could be, “You gotta play big to win big. And sometimes, you lose big” while the safety investment motto could be, “I’m just not playing. I’ll watch from the side-lines”.
So, if the money inside your TFSA isn’t growing the way you’d like it to, you might be invested in something where safety is the goal and growth is not. In any case, get curious and do some research to figure out and understand exactly what type of investment you do have sitting inside your TFSA and why you chose that investment in the first place. What was the goal for that money when you first invested it?
Here are a couple TFSA FAQs
What is it?
A savings account designed to help Canadians save their money for both long-term and short-term goals (with some fancy perks).
How does it work?
Like a house. Protects the stuff inside from the stuff outside. What’s inside being your money and what’s outside being taxation.
What are the fancy perks?
First, Tax Free Growth. Meaning, if you put $1,000 into a TFSA and that grows to $2,000, you do not get taxed on that $1,000 of growth. This is where compound interest really works its magic. Second, tax free withdrawals. Meaning, if you decide to pull out that $2,000 from your TFSA, you get to keep that full $2,000 (the $1,000 you invested and the $1,000 of growth).
You must be 18 years old to have a TFSA and the government sets the limit for how much you can put in every January 1.
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was written, designed and produced by Nicole Putz for the benefit of Nicole Putz who is a Financial Advisor for Wolfond Financial, a trade name registered with FundEX Investments Inc., and does not necessarily reflect the opinion of FundEX. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. Mutual Funds Provided through FundEX Investments Inc.