The TFSA is new enough that Canadians haven’t had time to experience its long-term investing implications, generally preferring to focus more on the S-for-savings.
But that could be a mistake.
“The TFSA is the ideal place for long-term equity investment and the power of it comes from that long-term compound growth and not as a savings account with cash in it,” says Steve Bridge, a money coach from Money Coaches Canada.
He gives the example of someone in a 40 per cent marginal tax bracket stashing $5,000 in cash at one per cent interest. They earn $50, so only save $20 from sheltering it within a TFSA. If you compare that to an equity investment that grows at 5 per cent, earning you $250, they’re now saving $100 in taxes.
“That’s five times the amount of just having cash in there,” he says. “If you add in the long-term power of compounding, now you’ve gotten yourself a powerful retirement tool.”
The best fit for a TFSA, most advisors will tell you, are equities that have steady and stable growth.