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Hello all,
I'm wondering which should I do first:
- Putting $5K into your TFSA; or
- Putting $5K into a margin account, being able to invest a max of $15K and paying taxes
and bonus, I have RRSP contribution room. Where would that fall in the order?
Thank you for your time and advice.
Following
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I think it depends on your income. If you have a high income and are in a high tax bracket and anticipate your income will go down in the future you may be better to go with the RRSP and get the tax refund. If you are lower income and don't anticipate a drop in income you may be better off with a TFSA. In an ideal world if you can afford to you can do both. In any case if you don't use the room in either one of them it does continue to accumulate so you can use it in the future. I always topped up my RRSP plus TFSA, but when I was laid off 11 years ago I got a large severance( approx 2 years salary) and I kind of wished I had some unused RRSP room left that I could transfer $ and not have to pay tax on. Of course few people can predict if/when they might have a severance but....
I would agree with Lizzie and further suggest taking your refund if you decide to put in an RRSP and investing it in your TFSA.
Margin accounts i.e. buying on margin are advised for people who can afford the risk. It's part of the portfolio strategy, not a strategy on it's own without other forms of investments.
You can get a plethra of info from speaking to investment specialists/financial planners many offer free first time advice.
Good luck!
My advice is .... not using margin. Margin is a useful tool at times, but I have still never used it. Sure, it magnifies gains on the way up, but also magnifies losses on the way down. If you are asking what to do on a board on the 'net, then margin is probably a really bad idea. No disrespect here, it is fine to ask for advice, but if you aren't absolutely sure what you are doing, then I would not try anything on margin.
As far as TFSA versus RRSP, as mentioned above, it depends on what your marginal tax rate is, and what you expect it to be in future. If you are paying mega tax now, and will be paying little in retirement (or if you take some time off of work for parental leave, or such), then fine, do an RRSP, save some tax now, pay less back when you take it out. Also if your spouse earns much less than yourself, then consider a spousal RRSP contribution.
If there is a chance that you are going to need to access the money (I don't recommend this, but hey, things happen), then TFSA is better. If you take money out, you can put it back in the next tax year. Not so with RRSP - you take it out, then that contribution room is gone forever.
I'm actually very OK with margin. I've taken out $100K and invested (and it's been going GREAT!).... which is why I ask this question in the first place. I love margin but should I be doing it in a taxable account before my TFSA is maxed? I'm not sure of that.
People will have different opinions on this but the smartest thing we ever did was get an advisor. I had been fairly successful managing our accounts but the advisor is worth his weight in gold. We have just shaved 3 working years off our plan. We have all three accounts but only go to the Margin account whenever the others are maxed out.
I agree 100% with @lilo0003 and was just going to post the same thing. Regardless of age a Financial Advisor is the way to go. Get one and review your goals and plans and work with them to get the best solution for you.
I was guilty of not having one until I wanted to see if I could quit working and retire early. I did Freedom 55 and if I had an advisor earlier I could have done Freedom 50.
I also advocate a for fee advisor who does not sell products to make $$. Mine gets a fee based on the size of my portfolio. I have never looked back and could not be happier.
The problem with an Advisor is that there are good ones and bad ones, like in any profession. For every good story you hear, there is probably a horror story.
I've decided to invest in my TFSA and wait until that is maxed to open a margin account. Planning to invest in HR - it's down 40% since March 2020 and I have faith covid will be over. If it goes back to precovid prices, I'll almost double my money. Plus it's 5.5% yield is nice and that's even after they cut it in half in May 2020. Once things go back to normal, they will raise it. in the meantime, the money they are saving is being used to buy more non-commercial properties (which have been hit the hardest during covid).
I can't say this is the BEST use of money offering the best return but I do really like what I'm seeing in HR. And that could be the difference between great (HR) and amazing (maybe Apple/Disney), great is still... great :)