Do both. TFSA can contain GICs.
this post was submitted on 23 Jul 2023
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This is from the other site, I will edit this comment shortly if I find a Lemmized version:
edit: couldn't find it so I've DM'd the mod to ask if something like it could be added to the sidebar.
Here's a direct link to the flowchart.
Here's another flowchart for deciding between RRSP and TFSA.
These are both from r/PersonalFinanceCanada.
Or even better, put a HISA money market fund like $CASH or $PSA in it to get a better interest rate than GICs with more liquidity and similar risk.
Should I focus on TFSA first?
Between TFSA and non-registered, definitely prioritize TFSA.
Yeah, fill the TFSA with ETFs. GICs should go into RRSP if more saving is desired.
It's too complex a question to quickly answer here, but here are my personal thoughts:
Max out your TFSA first and foremost -- the gains are tax free, and the sooner you max them out, the more you'll benefit from compounding returns. When deciding what to put into your TFSA, put the riskiest stocks/ETFs in your portfolio there -- because any disproportionate gains/returns will be tax free.
Afterwards, max out your RRSP to reduce your tax payable annually. If you have a large contribution room, and are gifted or inherit some money, put it all in your RRSP, then only claim enough money each year to lower your tax bracket down one level -- this maximizes your deductions. You can also borrow to invest in an RRSP, and the interest costs will be a tax deduction.
This helps, thank you
because any disproportionate gains/returns will be tax free
OTOH the most likely scenario is having mediocre gains, therefore wasting the tax-savings opportunity. Has anybody done the math to compare the performance of high-risk vs steady-returns if both have the same expected average returns? My intuition is that by exercising the tax-free aspect monthly you're making more in the long run due to compounding but I can imagine this being more complicated than that.
I made $100k on pot stocks in my TFSA, so... maybe my perspective is skewed.
But right now, I have a high-tech ETF with a high distribution that keeps going 'up and to the right'... I guess only time will tell.
That's really nice, and I hope you have great gains. But yeah that doesn't mean that it's statistically optimal unless you can predictably get right the high risk investments that will go well, in which case you're on your way to become a millionaire anyway.
As another commenter @foo pointed out, this is not a one or the other thing.
Your TFSA is like a basket. You can put lots of things in it-- savings account/liquid cash, GICs, investment accounts (equities/bonds).
Read the flowchart from Reddit and make decisions from there.
Personally I am getting more tempted by GICs, you can get over 5% in 18 month maturity now. Depending on your risk profile you might go a different way though.
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