Top 4 Tax Free Savings Account Strategies | Million Dollar Journey

Top 4 Tax Free Savings Account Strategies | Million Dollar Journey

With the upcoming tax free savings/investment account in 2009, my mind has been racing about what exactly to do with the account. Between my wife and I, we will have $10,000 worth of contribution room available to us in the first year which we intend to fully maximize.

How do we intend to use the account? I’ve written a few ideas in the original TFSA column which I’m going to expand on below.
1. Income Fund

I am a big fan of passive income which is evident in my dividend investing endeavors. One idea that I have for a tax free investment account is to invest for income. The reason being is that the income is completely tax free.

With my leveraged account, I don’t invest in anything that produces a return of capital like income trusts or corporate mutual funds. However, since taxation isn’t an issue with the TFSA, I will be looking into consistent high yielding equities to produce a tax free monthly income. Some equities that come to mind are REITs and income trusts like Canadian Oil Sands.
2. Aggressive Trading

Another idea is to use the TFSA for aggressive equity/options trading. This one is not as attractive as investing for income as capital losses cannot be claimed within a TFSA account. On the other side of the coin, gains will not face any taxation either.

One lower risk options strategy is to write call options for equity positions that you already own. With this strategy, you set the price that you are willing to sell your position for, but collect a premium in the process. If the stock price raises above your limit before the expiry date, you will be forced to sell. However, if the stock price stays flat or goes down during this time, the option will expire. The result? You get to keep equity position and your premium collected. If you like, you can keep writing call options and collecting those premiums.

Check out this link for a detailed series on how call options work.
3. Credit Card Arbitrage

When I wrote about credit card arbitrage before, I came to the conclusion that the strategy wasn’t worth it due to the thin spread between borrowing and accumulated interest after taxes. However, using a TFSA in conjunction with this strategy eliminates the taxation on the earned interest and makes the strategy more feasible.

Basically, take the free money that select 0% credit cards offer, deposit it into a high interest tax free savings account (approximately 3% these days), and collect the tax free returns on the free money. The biggest caveat being to watch the dates when payments are due.
4. Emergency Fund

This is perhaps the most popular solution for the TFSA as it will allow people to let their “emergency” money grow/withdrawn tax free. While there’s nothing wrong with using the TFSA this way, there might be a bigger potential with using the TFSA as a retirement account.

What do you plan to do with the upcoming tax free savings account?


December 5, 2008 at 9:27 am Leave a comment

Tips for success – Tips for success

Nice to know

December 2, 2008 at 9:21 pm Leave a comment

what could happen between 2009-2012

Squirrel alert — Greater Fool – The Troubled Future

Some people will tell you on this blog that you are crazy and have lost your mind for warning them of an economic depression of historical proportions

They will say that you are a doom and gloomsayer.

They will say that you are too pessimistic about the ability of the current global leadership to stop an economic meltdown.

They will say that Prime Minister Stephen Harper, Finance Minister Jim Flarity and the Conservative Government in Ottawa and the Bank of Canada have the economic and financial situation in the country under control and we need not to worry.

In this country anyone with an RRSP has lost a minimum of 20% of the total value of their investments. Pensioners over the age of 71 who have RRIF’s must withdraw (by law) funds from investments that are losing money. Ottawa has not decided what to do about the situation. Companies are asking the Minister of Finance for a longer time period to shore up pensions that have lost a considerable amount of money. Canadians can sure count on the federal government for help in these troubled economic times.

Many Canadian feel that they will not experience the severe economic troubles that their neighbors to the south are facing right now? They feel that the downturn and potential real estate crisis will not be as bad is the US.

However, has anyone ever stop to think that financial experts and journalist offered the same advice in your article today in 1993 and NO ONE, ABSOLUTELY NO ONE believed them!!!

James Dale Davidson and Lord William Rees-Mogg wrote a book called the Great Rekoning which was published by Simon and Schuster in New York. The ISBN number is 0-671-86994-9 and copies are currently avalible from for under $30.

In Chapter 14 of the book(pp438-485), the authors present a chilling even frightening analysis of how the private and public economy could decline in a deflationary depression. Here is a brief synopsis of what could happen between 2009-2012:

1) The declining real estate market will lead to the withdrawl of credit lines to individuals and business (p449).

2) Consumer spending which is 2/3 of the economy will start to drop as people defer purchases of durable goods . In the Great Depression of the 1930’s spending on furniture dropped 50%, auto sales plunged 70% and sales of consumer electronics declined 80% (p449)

3) Tarrif barriers could go up causing importers and exporters to lose money. Spending on capital goods for manufacturing firms will decline dramatically. Information based companies may escape this situation because capital will be spent on basic research as in the biotechnology sector (p451)

4) Spending in the defense and construction industry will decline as US forces with be withdrawn from areas of little or no strategic importance and directed towards the war on terror, russia or securing oil supplies etc. Private construction will decline as spending on public infrastructure projects will increase(p452-3)

5) People will spend money on basic necessities such as food during a depression. If their incomes are under strain they will buy cheaper or lower quality items. In the Great Depression of the 1930’s , prices for agricultural products declined 60%. However, i believe that agricultural prices may rise due to shortages in production and increasing global demand during this time period(p453)

6) There will be less spending on personal fashion and personal care items. Pawn shops will grow in popularity. Repair trades generally do well in economic slumps as people will be unable to replace their older vehicles and will try to keep them on the road as long as possible. Lastly multi level marketing, home entrepreneurs and personal care services will survive during these hard times. Companies such as Tupperware, Avon and Rubbermaid are reporting record profits due to non US sales in Asia, Europe and India p454)

7) Service industries could be hard hit during a depression. Restaurants, medical and legal services (other than bankruptcy) may face low demand as people cut back spending in these areas (p.456)

8) Commercial real estate will be in a slump as retail and other service business close their doors due to declining sales and inability to pay landlords rent and utilities. Some business such as law and business admin services will be run from home to save money in renting expensive office space(p.458)

9) Oil is not depression proof because demand from car owners, trucking firms, railways and airline companies will drop. Even if the US dollars is devalued or is replaced, demand will drop because Americans will not be able to pay for foreign oil imports and will do with less. Road infrastructure could deteriorate due to less spending by government(p459-60)

10) The cost of insurance will go up despite the possible decline in auto use, the increase in uninsured drivers continuing to drive and risk to business in areas of the city which is highly dependent on automobile activity(p461)

11) There will be a drop in profits for media firms especially in publishing and newspaper industries. Advertizing revenue from furniture stores, auto dealers and grocery chains could drop significantly during an economic downturn. New startup companies will have trouble surviving because it will have a difficult time raising cash to move to a larger facility or hire staff to meet business demands(p.466)

12) Household could be under strain if more than one member has lost a job. This may result in the reduction of spending to buy the bare necessities. Governments may be forced to chose to bailout some industries and let the weaker ones die. At present GM is asking an estimated $100 billion from western government to restructure the company to prevent its bankruptcy. Other industries such as airlines and manufacturers are asking for a bailout package.

13) Stimulation packages to stabilize the economy may not work. Governments will embark on infrastructure spending on roads as opposed to potable water and sewage disposal in cities. They may chose to invest in “industrial base” jobs for low skill workers that may show small returns. Income redistribution programs such as high taxes on the rich, moves money to poorly educated parts of the city. It may diminish incentives to save and forces people to be more dependent on government services.

There could be a situation in which higher regulatory measures could be imposed on businesses resulting in a local economy less competitive and slowing the recovery. Lastly these stimulation initiatives could result in adding to the size of the national debt (now $10.2 trillion)and increase the debt service cost not to mention the pressure on the value of the dollar(p.471)

14) Government services could be privatized during the depression. The breakdown of law and order will lead to an increase in private security firms to augment police departments to protect people and property. Public infrastructure services would collapse due to the loss of revenue to maintain and upgrade the system. Water and wastewater services could be privatized to save money. There could be a dramatic growth in privatized educational services as governments layoff teachers and support staffs to balance the books. This enables these firms to establish collages that charge high fees to train students for the new economy. Universities like MIT have already put their entire undergraduate&graduate courses on line for no charge for anyone to use to solve problems. The University of Phoenix is one of the largest tele-universities in North America and have graduated tens of thousands of people ready to go to work in the new economy. Universities in Canada better adapt to the new realities or get sweped away by other institutions(p.472-3)

November 14, 2008 at 3:32 pm Leave a comment

Market emotion cycle

October 31, 2008 at 4:45 pm Leave a comment

What should I do to plan for a bear market? – Strategies for a Bear Market – Investing | Financial Advice | Stock Market Investing

So, let’s answer the big question, “What should I do to plan for a bear market?” Not everyone has the same risk tolerance, so you have to pick a plan that fits your personality. Here are six possibilities to consider:

Strategy 1. Get out now and go to cash

Remember the 2000-2003 bear market, the massive 43% loss of market cap and a brutal tech crash. So once again, remember Warren Buffett’s No. 1 rule of investing: Never lose money. Maybe use the cash to pay down mortgages, pay off debt.

Strategy 2. Ultra-conservative fixed-income option

Back in early 2000 a number of savvy investors saw high price-to-earnings ratios as a clear signal to bail out and hide out in bonds, bond funds and money markets. It worked. In the 2000-2003 bear, one of the portfolios I reviewed returned about 10% a year while the stock market was crashing — a portfolio allocating a quarter each in short-bonds, intermediate bonds, inflation-protected securities and government savings bonds.

When to get back in stocks? Maybe never. Maybe “better safe than sorry.” After all, the market is still below where it was six years ago!

Strategy 3. The entrepreneurial spirit

OK, so sitting on cash doesn’t appeal to you and neither does a lot of dull, boring bonds. You want your money working. Take a cue from “The Millionaire Next Door.” Turns out most millionaires don’t become millionaires by investing in the stock market. They create equity one of three ways: Building businesses, developing real estate or as professionals. They’re entrepreneurs, they work for themselves.

The other 96% of Americans who don’t become millionaires will retire with relatively small incomes from IRAs, 401(k)s and Social Security.

Strategy 4. ‘Mad Money’ stock trader

Hyperactive teenagers on speed are hard to take, especially if you have the temperament of a long-term buy-and-hold investor. But for some few investors, the “Mad Money,” active stock-trading alternative may be best. Just remember, for successful traders, this is a full-time job. They study market psychology, and know the tricks of playing in a bear market as well as riding the bull.

Most of all, remember that the “more you trade the more you lose,” because commissions, taxes and expenses will eat up much of your returns.

Strategy 5. Hot commodities trader

One of my readers tells me he put $10,000 in gold a couple years ago after reading my earlier columns on the two-decade negative returns of gold. I was his contrarian indicator. Now he claims his gold is worth $150,000. Hindsight is great, but I say the risks were high then, and still now.

Betting on commodities is a volatile, highly-leveraged crapshoot. Witness last week’s sector sell-off triggering a flight to safety. But, if you’ve got the guts for high-risk volatility, and you’re ready to make a full-time job out of being a commodities investor, review my earlier column. See previous Paul B. Farrell.

Otherwise, satisfy your anxiety by adding a very small percentage of commodities to your asset allocation.

Strategy 6. Relax and do nothing

Yes, this is the omega and alpha of all long-term investment strategies, the ultimate “Plan A.” The one that works for most passive investors. If you already have a well-diversified portfolio, you’re ready for a bear market (or a bull).

Back a few months ago I updated the performance of five “lazy portfolios” we’ve been tracking a while. For example, during the bear years of 2000-2002 the Coffeehouse Portfolio beat the S&P 500 by 15% each of the three years, while the Nasdaq dropped 80% and the stock market lost $8 trillion. The Coffeehouse Portfolio is proof you can win in both bull and bear markets, with no trading, no rebalancing, no tinkering with allocations.

Strategy 6 is the best bet for almost all investors, especially passive investors. But like I said, you have to pick a plan that works for your risk tolerance and personality type. Maybe good fortune will smile on you, like with the guy who thinks I’m his contrarian indicator, who doesn’t care if the playing field isn’t level, who loves gambling and betting against the house at this casino. If that’s your way as an investor, please, be my guest, pick one of the other five plans!

October 30, 2008 at 7:21 pm Leave a comment



  1.   Start a web.
  2.   Pay off debt.
  3.   积极参加社会活动。
  4.   参加合作式体育运动。
  5.   做一些并不擅长的新事物。
  6.    好机会要自己去找,不要等着天上掉馅饼。
  7.   佛经讲义,禅。
  8.   上表演课。
  9.   学会赞美别人。
  10.   不要过分追求完美。
  11.   把目标列成表

October 25, 2008 at 6:55 pm Leave a comment

5 Fundamental Housing Rules

These “5 Fundamental Housing Rules”, which have been used to great success for the last century, are:

* The monthly mortgage payments should not exceed 33-35% of monthly Net family income.
* The monthly mortgage payments should be around 1/120 of the mortgage, and no less than 1/200 that of the mortgage (this is the “120 rule”).
* The monthly mortgage payments should be – at minimum – 15% less than comparable rents for similar units in the rental market.
* The price of the house should be about 3 and no more than 3.5 times that of Net annual family income.

And perhaps, the most important one of all;

* The average house must be affordable by the average family and their combined income.

October 12, 2008 at 4:15 pm Leave a comment

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