The TFSA is as good as it gets in terms of TAX FREE savings. $5,000 a year may not seem like much but, driving what might seem to be a small investment with the power of compound interest, you’ve got an investment winner impossible to beat.
I offer the following TFSA investment scenarios. The scenarios range from the person who can contribute the maximum allowable $5,000 per year to the person who contributes $50 every 2-week paycheque 26 times per year.
Examples of TFSA investments based on a return of 5 % per year.
1) You invest $5,000 ONCE ONLY, and make no further TFSA contributions at all. If you are 18 when you make your first TFSA investment and you let your investment compound for 40 years (until you are 58) your $5,000 will have grown to $36,490. Based on contributions totaling $5,000 this $36,490 represents a TAX FREE profit of $31,490. Averaged over 40 years your TAX FREE return is a superb 15.75% per year. Where can you get that in the stock and mutual fund market? NET – NO TAX!
2) You invest the full allowable TFSA contribution of $5,000 ONCE A YEAR every year (hopefully the 1st of January so you get your investment compounding as soon as possible each year). If you are 18 when you make your first TFSA installment and you let your investment compound for 40 years (until you are 58) your $5,000 per year will have grown to $654,206. Based on contributions totaling $200,000 this represents a profit of $454,606 or an average of $11,365 TAX FREE profit per year. Averaged over 40 years your TAX FREE return ($11,365/$5,000) is a whopping 227% per year. NET – NO TAX!
3) You contribute $50 per 2-week paycheque to your TFSA from age 18 to age 58 (40 years). Over that time you will have contributed $52,000 and your $50-per-paycheque investment will have grown to $164,612 for a profit of $112,612. This is an average yearly TAX FREE profit of $2,815 which amounts to an average yearly TAX FREE return of 216% per year. NET – NO TAX! Such is the power of compound interest!
4) You contribute $100 per month to your TFSA from age 18 to age 58 (40 years). Over that time your TFSA investment grows to $151,781. Having invested a total of $48,000 this represents a TAX FREE profit of $103,781 which is an average yearly TAX FREE profit of $2,595. An average profit of $2,595 a year applied against a contribution of $1,200 a year amounts to a spectacular average yearly TAX FREE return of 216% per year. Not a bad return for an investment of $100 a month. NET – NO TAX!
5) You want to max out your TFSA investment opportunity of $5,000 per calendar year, but want to do this through regular periodic installments, so you contribute $192 every 2-week paycheque to your TFSA. You do this for 40 years, from age 18 to age 58. At the end of that time you will have contributed a total of $199,680 to your TFSA and accumulated a TAX FREE amount of $632,112. Having invested a total of $199,680 to accumulate $632,112 your profit is $432,432. Over 40 years this amounts to an average yearly TAX FREE profit of $10,810. If you apply your average yearly profit of $10,810 against your yearly contributions of $4,992 you’ve earned a whopping average TAX FREE return of 216% per year. NET – NO TAX!
Would someone please tell me where you can earn that kind of profit on a simple safe stress-free modest affordable investment, without undue risk and maintenance?
Go to Fisgard’s TFSA calculator at www.fisgard.com and plug in your numbers – your TFSA investment scenario – and see how you can accumulate a TAX FREE investment based on what you can afford or what you want to invest. Using the magical power of compound interest you will be pleasantly surprised at how large a small investment – or a series of small investments – will grow to.