Invest more aggressively in TFSAs | Advisor's Edge (2024)

FAQs

Should I invest aggressively in my 20s? ›

Your 20s can be a great time to take on investment risk because you have a long time to make up for losses. Focusing on riskier assets, such as stocks, for long-term goals will likely make a lot of sense when you're in a position to start early.

Stocks, bonds, and mutual funds are the most common investment products. All have higher risks and potentially higher returns than savings products. Over many decades, the investment that has provided the highest average rate of return has been stocks.

There are many eligible investments, such as shares of Canadian private corporations, that can be held in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). It's important to note that both RRIF and RRSP accounts are registered with the Canada Revenue Agency (CRA).

Moderate Investment Mix Samples

Moderate investors, also known as balanced investors, typically use a mixture of stocks and bonds. They might be roughly 50/50 or 60/40. That is: 60% of their assets might be in stocks (large companies, small companies, overseas stocks, etc.)

Key Takeaways. If you're in your 30s, you have 30 or more years to profit from the investment markets before you are likely to retire. If you can handle the volatility of stock prices, now's the time to invest aggressively.

No matter how old you are, the best time to start investing was a while ago. But it's never too late to do something. Just make sure the decisions you make are the right ones for your age—your investment approach should age with you.

High-quality bonds and fixed-indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.

Bonds in a TFSA

Government bonds are generally considered less risky than corporate bonds, but the trade-off is a potentially lower rate of return. Bonds pay out periodic payments throughout the term. And, when compared to stocks, bonds may generally be considered safer investments.

What stocks are prohibited in a TFSA? ›

Prohibited Investments

A prohibited investment is property to which the TFSA holder is closely connected. It includes any of the following: A debt of the holder. A debt or share of, or an interest in, a corporation, trust or partnership in which the holder has a significant interest–generally a 10% or greater interest.

Generally, interest, dividends, or capital gains earned on investments in a TFSA are not taxable either while held in the account or when withdrawn.

An aggressive investor commonly has a higher risk tolerance and is willing to risk more money for the possibility of better, yet unknown, returns. A conservative investor commonly has a lower risk tolerance and seeks investments with guaranteed returns.

The more conservative your investments, the steadier your returns will be, while a portfolio that's more aggressive is apt to experience more of a roller coaster effect, typified by higher highs, but potentially lower lows.

What is an Aggressive Investment Strategy? An aggressive investment strategy typically refers to a style of portfolio management that attempts to maximize returns by taking a relatively higher degree of risk.

While the cost of living varies from place to place, a nest egg this size would likely give more than enough money for decades of comfortable living. Even if you live another 50 years, $5 million in savings would allow you to live on $100,000 per year.

The 120-age investment rule states that a healthy investing approach means subtracting your age from 120 and using the result as the percentage of your investment dollars in stocks and other equity investments.

For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.

By age 30, you should have one time your annual salary saved. For example, if you're earning $50,000, you should have $50,000 banked for retirement. By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account.

Fidelity says that by age 30, you should aim to have the equivalent of your annual salary in a retirement plan. By age 40, you should have three times your salary. So by age 35, your goal should be to have 1.5 times your salary socked away.

What is the 120 age rule? ›

What Is the 120-Age Investment Rule? The 120-age investment rule states that a healthy investing approach means subtracting your age from 120 and using the result as the percentage of your investment dollars in stocks and other equity investments.

Some options for relatively safe investments include high-quality bonds, certificates of deposit (CDs), and money market accounts. These investments are generally less risky than stocks, but also have lower potential returns.

The highest risk investments are cryptocurrency, individual stocks, private companies, peer-to-peer lending, hedge funds and private equity funds. High-risk, volatile investments may bring high rewards, or they may bring high loss.

For example, certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS) are among the safest types of investments.

Should I hold stocks in TFSA? ›

For non-dividend U.S. stocks, holding them in TFSA could be a smart choice. Like Canadian stocks, you won't pay a capital gains tax on U.S. stocks when you sell them for a gain. And unlike RRSPs, you won't pay taxes when you withdraw money from your TFSA before retirement.

Savings bonds are not the best investment, even for college. The rate of return is set by the U.S. government and market conditions, and it can take up to 20 years for the bonds to fully mature to double their original value. 1 That is a fairly low rate of return.

Bond risks

U.S. Treasury bonds are generally more stable than stocks in the short term, but this lower risk typically translates to lower returns, as noted above. Treasury securities, such as government bonds and bills, are virtually risk-free, as these instruments are backed by the U.S. government.

People often invest in a combination of stocks and bonds, which is easy to do using mutual funds and ETFs. One strategy for investing in your 20s is to invest a higher allocation of your long-term investments in stocks and less in bonds, slowly moving into more bond funds the closer you get to retirement.

If you need a lot of money for retirement or want to live an opulent lifestyle, you should invest more aggressively. If your needs are lower, you can afford to be less aggressive. Ability to save. If you have a strong ability to save money, then you can afford to take less risk and still meet your financial goals.

Many experts agree that most young adults in their 20s should allocate 10% of their income to savings. One of the worst pitfalls for young adults is to push off saving money until they're older.