Jerremy Alexander Newsome
The 5 Main Strategies for your TFSA
The 5 Main Strategies for your TFSA
Greetings, Real Life Traders and those who stumbled upon this article. This article is for those of us that live in the great white north of Canada or for Canadians that are living abroad and still have to report taxes to our government.

Taxes are part of life and whether you think they are bad or good, I have the opinion that no matter how I feel they will still be there. What I would like to share with you is a vehicle that can be used for investments that is completely tax free and created by our government so it is definitely legal. However, there are some restrictions when it comes to investing through a Tax Free Savings Account (TFSA).
Here is my wonderful disclaimer. I am not a professional financial advisor or an accountant, so please contact your service providers to see if what I mention in this article is something that would meet with your personal and family goals for your financial future. Now that we have the disclaimer out of the way let's dive right in.
The TFSA program was started in 2009 and in my opinion was marketed very poorly, or very well depending on whose side you are on. Banks do a great job marketing the TFSA because, well the more assets they have under management, the more they can lend out and continue to make money off of us, the consumers. Looking at some simple math I'll try and break it down for you. If you walk into the big banks in Canada and ask to open a TFSA you will sit down with a wonderful smiling person and they will tell you that they can guarantee 2% if you open the account today. The reason I said that TFSA's are marketed poorly is in the name 'Savings Account'. When I hear this I think of just a place to store my money for access if needed. I also think of not really getting much for what I put in. They should be called Tax Free Investment Accounts. If I heard that name I would be much more inclined to expect a higher rate of return. With the 2% rate of return, if you put in a lump sum and never added to it, it would take 36 years for the account value to double. I'm 32 years old. If I'm lucky to see a bunch of grandkids and maybe some great grandkids born I might see two doubling periods. 2% is just not going to do it.
What I would like you all to think about is taking control of your financial future and using this vehicle a whole lot better. TFSAs are not just savings accounts. They can be used to invest much like other vehicles we have in Canada like RRSPs. You can invest in mutual funds, GICs, segregated funds, etc. Finding a mutual fund that averages 8% annually, which can be done if you get on the phone and start asking around, means your money is now doubling every nine years. This is much better than the 36 year doubling periods with the guarantee from the bank; however, the TFSA offers a much greater opportunity in my opinion. This is a vehicle that offers NO TAX ON GAINS. To me this means it's worth a shot to swing for the fences.
There are countless other articles and videos on the RLT website to teach you the strategies of how to profitably trade the market and these are some of the strategies that should be applied to a TFSA. In my opinion the best option for a TFSA is a self-directed TFSA.
I personally trade through Interactive Brokers and have a TFSA account. There are some restrictions to trading through a TFSA. TFSAs started in 2009 and originally had a $5000 contribution maximum, which stayed consistent until 2012. In 2013 the maximum increased to $5500 for 2 years, then to $10,000 for 2015. And now in 2016 we are back to $5,500. This means that if you have not contributed anything to a TFSA and you wanted to max out your contribution to the end of 2015 you would have $41,000 of room.
There are other restrictions as well. You must be over 18 years of age to open a TFSA, and contribution limits only start when you become of age. So if you are 20, only two years of contribution space is available to you. There are restrictions on what you can do with the money in your account. Through Interactive Brokers you can:
trade stocks directionally that are designated on the US and Canadian exchanges, long equity call options, long equity put options, short equity call options with a covered position (covered call),long equity put options with a fully covered position (protective put),
US bonds and Forex conversions of USD/CAD only. There is also no margin available within the TFSA, meaning what you put in is what you can trade with.
Personally, I use the TFSA for trading directional options as options have built-in leverage and offer a great risk to reward. For more information on the option strategies I use, again Real Life Trading has an amazing selection and I recommend watching the videos multiple times.
To finish up, I truly believe that the TFSA program was a massive gift given to us from our Canadian government and even though the contributions do not create tax benefits immediately, I would rather be taxed on the seed than the entire harvest. I know my opinions are going to be different than some, but I hope that you will continue to learn and take charge of your financial future and not be sold on someone else's plan for your life.
Live with passion,
Jonathan Higgins
