Should I be take risks with my TFSA?

Home Run TFSA
Although the TFSA is called a ‘savings account’, it should be considered an ‘investment account’. Some individuals have taken on risks, to grow their accounts far beyond their initial contributions. Similar to the Financial Post’s query earlier this year, MoneySense magazine was also asking it’s readers to let them know how well they were doing with their TFSA accounts, in what they called, “The Great TFSA Race”. Here is the ‘winner’ of their search. A 38 year old man, named Jim, has the largest recorded TFSA with over $300,000. Wow! Here are some quotes from the article. “I have a good defined-benefit pension with my employer, so I knew I could take some risk with the TFSA. If it goes to zero, I’m fine with that. I saw the TFSA as a way to swing for a home run.” The article also mentioned that he had maxed out his RRSP and that he was a conservative ‘vanilla type of person’ with his other investments. So, how did he do it? He made two consecutive all-in bets on two penny stocks. Based on his personal profile, I can understand why he did it. He’s got a ‘safe’ DB pension and a maxed-out RRSP, that is conservatively invested. He should be set when he retires, regardless of how well his TFSA performs. Yes, he did get lucky in his TFSA. He got two home runs. Good for him. Home Run TFSA In regards to my personal situation, I don’t have a safe DB pension. However, the goal is to retire at an early age. This means that I must maximize my RRSP, plus build a significant non-registered portfolio. By the time I retire, my TFSA will be a small percentage of my overall portfolio. If the majority of my portfolio is conservative, then there’s nothing wrong with taking on some riskier investments in my TFSA, as part of an overall diversified portfolio. What kinds of riskier investments? The gentleman in the article made two consecutive all-in bets on two penny stocks. Personally, the all penny stock portfolio is too risky. However, I see nothing wrong with investing in some higher risk investment items such as: solid small-cap stocks or equity option contracts, within one’s TFSA account.

Should others utilize this ‘risky TFSA’ approach?

Probably not, unless you have a profile similar to Jim above, or have enough assets to include higher risk items. For younger people, in their 20s and 30s, the TFSA will be a large part of their future retirement portfolio. Therefore, you should treat your TFSA (and the rest of your investment profile) with reasonable care. Ensure that you have created a diversified and properly allocated investment portfolio for yourself. Don’t always go for the home run. Jim was lucky. You may strike out. [Flickr: FaceMePLS]