When TFSAs first came out, investors were excited to see exactly what they could accomplish with this new investing tool. Over the years there have been many stories of investors making huge gains on their initial investments; here’s a compilation:
After reading the stories of these successful TFSA investors, you probably wonder how YOU could become one of these people. For starters, you need to find out what they all have in common:
Risk to reward ratio
One of the aspects these investors all have in common is the fact they are willing to move outside their comfort zone and risk more than usual. Perhaps they have a healthy RRSP or company pension plan already set up so can afford to risk this “extra” money for the potential of a higher reward. Because they are willing to risk more, they can potentially win more.
General investing savvy
Pretty much all the success stories involve people who have at least some knowledge of investing, and/or stick to their field of expertise. They do research on stock market values. They know when to buy and when to sell. And most of them typically stick to sectors they are familiar with…if their day job is in the mining industry, chances are that’s where they will focus their riskier investing energy.
Knowledge of TFSA rules
Taking advantage of the tax-free nature of a TFSA, successful investors tend to put their higher-risk investments inside their TFSA and their lower-risk investments outside. Because all gains inside the TFSA are tax-free, any big payoffs stay big (less any withholding tax on foreign dividends), and won’t be eaten by the CRA unlike any gains made inside an RRSP or non-registered account!
Successful investors also know to keep track of their contribution limits and not to exceed them. Since this is a common amistake for less-savvy investors, not having to pay that extra 1% in penalty tax per month can pay off big for them in the long-term!
Sometimes it can just come down to pure luck. Successful investors don’t win 100% of the time. Sometimes they lose, and lose big. And no matter what techniques they used to win or lose, there is plain-old random chance.
So if you want to emulate these successful investors, you need to get off your duff and set up a TFSA. Then move outside your riskiness comfort zone, do your research, know the rules, and count on an element of luck!