Alternative TFSA Investment Vehicles
When people think of investing, mutual funds and the stock exchange usually comes to mind. While these are the more traditional way to invest in your TFSA, you have other options too. The CRA allows what are called “qualified investments” to be included in your TFSA. This includes properties, money, GICs, bonds, mutual funds, and securities listed on a designated stock exchange.
Gold and silver
Yes, it’s possible to buy gold and silver and incorporate these into your TFSA! Gold (and to a lesser extent, silver) has been used as the basis of many economies over the years, and while no nation bases their monetary system on gold anymore, many continue to hold onto gold reserves as a safeguard against stock market and geopolitical instability.
Adding these precious metals to your portfolio increases your diversity in a unique way…you actually own a tangible asset unlike traditional investment types. The physical bars or coins are typically held in secured storage owned by the TFSA issuer, although you have the option of holding on to the bars or coins yourself.
There are various firms in Canada which specialize in setting up RRSP and TFSA accounts to hold gold and silver. Make sure to ask how they are insured, how the bars and coins are handled (delivered to you, or kept on-site), and the various fees. Because you are dealing with tangible assets, the management fees associated with stock certificates are absent, but you will pay storage, insurance, and shipping fees, plus the usual commission fees.
Art
At the moment it doesn’t appear you can invest in art and add it to your TFSA portfolio. However, you could invest in a company that does hold art, in which case that investment would be treated as a typical security, so long as it was listed on a designated stock exchange.
Real estate
While government regulations do not allow you to directly hold real estate in your TFSA, there is a way around this. If you have a self-directed TFSA you can borrow (withdraw) that money in order to pay off a mortgage (yours or otherwise), save on the mortgage interest, and pay that money money back into your TFSA where it can sit tax-free.
There are many rules you need to follow in order to do this legally and within the CRA guidelines. If you are thinking of going this route talk to a financial advisor and mortgage specialist who can alert you to the ins and outs of using your TFSA in this manner. If you are using your own TFSA to fund your own mortgage, you’ll need to insure that mortgage since you are dealing with yourself and CRA rules state that non-arm’s-length qualified investments be insured.
Note that when mortgage interest rates are low there isn’t a lot of benefit to doing this. Do the math and you’ll see you may not come out that much ahead! As well with the advent of the RRSP Home Buyers Plan this method of investing has all but disappeared.
Contribution limits
In all these cases, you are potentially talking about a great deal of money. Remember though that you must stay within your contribution limits! If you invest too much in these nontraditional items you can potentially over-contribute and end up paying the CRA penalties.
Sources:
http://canadianbullionservices.com/rrsp-tfsa
http://www.questrade.com/trading/products/precious_metals
http://rspmaximizer.weebly.com/