At only 25, Bridget Casey knows a lot about investing. She opened her TFSA in early 2009 and has faithfully added $200 every two weeks since then. In the beginning, she simply deposited the money in an online savings account, but a few months ago she took the bold step of opening a discount brokerage account so she could do some stock picking. “Because I’m young, I think I can take more risk than a simple savings account,” says Casey, who works in student recruitment for the University of Alberta in Edmonton.
She has a clear strategy for her TFSA. “I do my own research, focusing mostly on dividend-growth stocks,” says Casey, who today owns a few shares of Johnson & Johnson, Husky Energy and CenturyLink, a U.S. telecommunications firm. Before opening her discount brokerage account (she chose Questrade), Casey spent a year building her stock-picking confidence by investing in a simulated portfolio and following her progress online. “Last year was a good one for the markets and I learned a lot of valuable lessons. My mock portfolio returned 30% in 2010, and that gave me the confidence to try stock picking in my TFSA this summer. I haven’t made any money on it yet, but it’s still early days.”
The one thing she looks out for? Fees. “At Questrade, trading commissions are only $4.95, and with a small portfolio like mine, keeping costs low is essential to ensure they don’t eat up my returns. That, and the fact that my dividends and capital gains will go untaxed are what I’m hoping will give me the maximum value for my TFSA dollar.”
What the experts say
A TFSA is a great fit for someone like Casey who is in her 20s. The flexibility will allow her to make tax-free withdrawals at a later date if she wants to buy a house or car. She’s also wise to keep an eye on costs when using a discount brokerage. “Fees and taxes are really the only two factors contributing to investment returns that an individual has explicit control over,” says Heath. “The ebbs and flows of stock markets are much less controllable.”
Still, both Heath and Lamontagne see some potential potholes in Casey’s approach—mainly when it comes to establishing goals. “She may be 30 to 40 years from retirement, but she also could be only a couple years from a wedding, a home down payment, childcare costs, and the like, so her risk tolerance should probably reflect these short-term goals instead of her golden years.”
Lamontagne agrees. “If she plans to use those funds in the short-term, then she should not be buying individual stocks.”