How to Build a $100K TFSA

Okay by popular request I’m going to dive a bit deeper into how on I managed to build my TFSA to almost $100K balance since I started it back in 2009 despite only contributing $57,500. My annual return has been 10.5% since 2012 (I would have to dig in my archive to pull out the earlier years but you get the idea).

Honestly the first thing you should do to get an high TFSA balance is to use your full contribution limit each and every year as soon as possible.  Letting the contribution room build up is like letting dust bunnies grow behind your furniture.  It doesn’t help anyone.  If you don’t use it it won’t have compounding growth which keeps the balance growing.

You also have to decide what exactly your TFSA is going to be for your overall financial plan.  You can use it to park your emergency savings but that will result in your having less growth.  In my case, both my wife and I decided that the TFSA would be for income purposes.  We wanted to generate a steady stream of income from our accounts to help fund our retirement.  So while it grew fairly quickly since 2009 we do expect it to slow down going forward as we start to take money out of the accounts.

Now the third key thing to is to accept that if you want a big balance you are going to have to take some risks.  Using your TFSA as a high interest savings account or GICs is dooming your balance to stay low.  There is nothing wrong with those investments depending on your objectives for your money just don’t be so conservative that you are losing to inflation each year.  As I mentioned above our objective was income so we started off with individual stocks of dividend paying companies.

To find the companies that we would end up investing in we looked at our own bills we paid each month and bought in similar sectors.  After all monthly bills often mean long term clients that pay regularly into the business which gives the company cash to pay out dividends.  So we ended up looking at banking, insurance, telecommunications, utilities,  oil and gas, and real estate income trusts.  We then looked to have at least two different companies for each sector we invested in as we didn’t want to have all our eggs in one basket.  Also we tend to look towards higher yield companies as we planned the TFSAs as our highest risk accounts so we expected to be compensated for that risk (we typically looked at companies with about a 5% or higher yield).  Please note yield for a stock is just the dividend payout annually divided by the share price shown in percentage.  A high yield can be the result from a company having a period of bad news that temporarily drives down the share price.

Once we identified a potential company in a sector by yield we would then pull open its last annual report and flip to its asset and debt balance sheet and look for its retained earnings.  A good value here usually indicates the company is sitting on some cash so in event of a downturn in their business they can keep paying their dividend.  If the retained earnings were low and the debt levels were high we would often avoid buying the company.  Also at this time we would take a look at how long has the company been paying a dividend and how often they increase it.  Steady dividend growth often means a decent growth in the company overall which is good for the share price in the long term (and your TFSA balance if you buy shares in the company).

Later on we added an ETF of preferred shares to our TFSAs instead of bonds to give a bit more balance to the risk profile of the accounts but still focus on producing income.

Then the last factor in getting a high TFSA balance is: luck.  You occasionally will pick a company that does REALLY well the spikes your balance.  For me it was AQN (Algonquin Power & Utilities Corp) which I managed to buy when it was under a cloud of doubt due its debt level but the overall numbers looked fairly good and utilities have very dependable cash flows. My yield based on my purchase price is somewhere above 10% now.  For my wife, she bought MFC (Manulife Financial Corp) and the share priced increased by around 30%.  So yes, that is hard to predict but it does occasionally happen.

So what do you use your TFSA for and are you happy with your return?

11 thoughts on “How to Build a $100K TFSA”

  1. We use out TFSAs as part of retirement savings. Each of us has about $110,000 in the account. Although we are retired we transfer the maximum in $ or securities each year. As obligatory RRIF withdrawals in conjunction with pay pension and govt benefits will be more than we need most years probably won’t make withdrawals in the foreseeable future.

  2. I am viewing my TFSA as an emergency fund for major purchases/repairs that can not be covered by monthly income
    ex: purchase a car when the old one is retired. Other than that I do not envision touching it.
    Presently retired. Winding down non -registered portfolios and then will start in on the RRSP’s.
    Future retiree’s might consider winding down the registered portfolios and then live off the non-registered portfolios.
    I am hoping to wind down the non-registered to allow more time to build up the RRSP prior to conversion to a RRIF. Hopefully the RRIF will supply sufficient funds to continue contributions to the TFSA and possibly build up a non-registered fund.
    Keep in mind that exceeding some place around $74K of income will diminish your OAS income. So while that is, so to say, not something to complain about it non the less diminishes DB funds from the government.
    The TFSA is a great place to sock away money. I doubt I will ever be affected but I would not trust some future government trying to limit the amounts accumulating in there . It will just be too juicy a cash pile for them to resist. And they can say they are just re-distributing the wealth of those who saved their money to those who did not.
    Just below $100K in TFSA
    Paying out approx. 6% – 7% per year. All re-invested except for this year where I am accumulating some cash – just in case.


  3. Thank you so much for sharing, Tim (the comments are also very informative)! I’ve also tried to read other financial posts / blogs on the internet to educate myself but often times those articles confuse me even more. You are a very smart person and it would be great to be able to learn more from you. I’m curious about your thoughts on people doing day trading with TFSA accounts. Is this something you will ever look into doing because you seem like you can handle risks fairly well!

    There hasn’t been much growth in my TFSA lately (still around 60k). I recently bought some tech stocks but it hasn’t been doing well. I also think I’m paying TD way too much for management fee every month for so little return.

  4. misuchru
    Do NOT use the TFSA for day trading . The CRA will view it a a business and the gains will be taxed accordingly . Of course , you have to get caught and audited first.

  5. Another great post, keep them coming! I really enjoy reading them as I am ramping up my savings / mortgage pay off to have Freedom 55! Right now I am trying to max out my TFSA, I have some catching up to do!

  6. Thanks for the reminder diharv. =) But don’t worry I’m not planning to do that because I don’t think I can handle the risks involved. I watched some videos on Youtube of people doing day trading as their full time job and I thought with Tim’s knowledge and experience in investing, it maybe something for him so just wanted to know his thoughts.

  7. Thank you for this, very practical. Two questions. Where do you find the annual report of a company? And how did you actually bought the shares, did you use an online brokerage? I’d like to use some of my TFSA the way you describe so if you could share more practical details that would be great.

  8. Actually I have the same questions as CM but was just too embarrassed to ask because I thought the default answer would be to search on Google. =)

  9. @misuchiru – I would never day trade (in or out of a TFSA – diharv is correct you could be considered a business). Day trading is mainly speculation in my opinion. I invest for the long term and I don’t look for short term gains. I suggest people avoid day trading as the odds you beating the firms with the custom built software and army of traders is very small (I know someone who used to work for one of those firms ).

    But yes, do consider getting cheaper fee options as they will get a better return in the long run.

  10. As I’m investigating how to make my investments go further, I’m seeing more and more people investing in ETFs. I had never heard of them before! Do you use a broker or do you use a discounted online brokerage? Do you invest yourself or do you have someone do it for you? I do most of my investing through Sunlife, but I see that they are not involved in ETFs, so I will have to find another way to invest. Sorry for my ignorance on the subject, I’m trying to learn. Thank you!

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