Me and my TFSA
Felix Rousseau, 25, a communications technician the military, is new to TFSA investing and just started contributing about two years ago. “I had $2,000 saved up in my chequing account at the time,” says Rousseau. But a chance encounter with Gordon Pape’s book, Tax-Free Savings Accounts: A guide to TFSAs and how they make you rich, it changed the way he views money. “The book talked about all the ins-and-outs, advantages and disadvantages of TFSA investing and I was hooked.”
Rousseau has a strategy for his TFSA. He diligently saves 50% of his net income every month in a chequing account. Then, at the end of each month, he moves it into his self-directed TFSA. While he knows most experts would recommend having contributions come automatically out of his checking account, he prefers the hands-on approach for now. “If I get too busy, then I’ll consider automating it,” he says.
Being in the military, Rousseau’s housing expenses are paid for by the government so he’s able to save $1,500 monthly. He’s also discovered he has a passion for investing and has done quite a bit of reading on the subject. And that reading has led him to his present strategy—his passive Couch Potato strategy with bank index mutual funds. Right now, his money is divvied up 30% in Canadian equities, 30% in U.S. equities, 30% in international equities and 10% in a Canadian bond index. “I know it’s a more aggressive form of the couch potato, but I looked at historical investment returns and because I’m younger, I know I can take on more risk,” says Rousseau. “It’s not a big deal for me to have more equity investments at this time in my life. I can put up with the volatility.”
Rousseau says that even though he’s enjoyed the military—and they paid for his electrical engineering degree—he is planning to leave the Armed Forces sometime over the next five years. At that time he has big plans for his TFSA money. “I’ll use the TFSA money to either open up a franchise or buy a duplex back home, just north of Montreal,” says Rousseau. “Real estate here on Vancouver Island is pretty expensive—about $500,000 for a small two-bedroom house. I can get much better value for my money if I eventually buy property in Quebec.”
His advice to 20-somethings? “Start saving now,” says Rousseau. “Time is the most valuable thing in the investment world. Make a trip to your local bank branch and just open an account now—even if you just have minimal savings. Then, read a couple of books on passive investing, or simply go through canadiancouchpotato.com. It’s not difficult. It’s time well spent and you’ll more than make up for it in the cost savings from using a passive strategy on your investments over the years. You can’t beat it.”
Great work. Smart, low fee portfolio. One potentially fatal flaw.
Rousseau has a fine asset mix for a long-term strategy, but Janet Gray, a certified financial planner, feels he needs to be thinking short-term since has plans to use that money within the next five years. If the equity markets reverse course just as he needs the money the losses could be devastating if he’s still in 90% equities, she says.
Her advice: he should consider slowly boosting his fixed income holdings in his TFSA as he gets closer to the day he leaves the military. Within the next three years his portfolio should be 90% fixed income and 10% equities.
Felix’s TFSA holdings
First published March 31, 2017