Here’s how I handle my TFSA contributions – I divide the total amount for the year, currently $6,000, by 26 and then have that amount electronically transferred when I get paid every two weeks into a TFSA investment account.
A reader recently asked about TFSA contribution strategies for this year: “We have yet to invest in our TFSA for 2020. Should we go ahead and invest now, or should we wait for another few months when the economy will hopefully begin to pick up again?”
I have no idea at the best of times about when the best time to invest is. Now, I’m more baffled than ever. The economy has been damaged and prospects for a comprehensive reopening seem uncertain at best, given the differing medical outlooks across the provinces. Will companies bring back all the workers they laid off? How many businesses won’t reopen? How much will economic activity be down overall six to 12 months from now? What about all the debt deferrals people arranged – what happens when they have to resume their usual payments?
Our world today is so much different than it was in early February, before pandemic fears hammered the stock markets. And yet, the U.S. stock market has charged back to the point where it was off only about 10 per cent in late May from its 52-week high and well above its level of May 2019.
I don’t get it, and I won’t fight it. My biweekly TFSA contributions continue, just as they did when the markets plunged in March.
As to that reader question, I can only suggest the gradual approach to TFSA investing. Academic studies have shown that lump-sum investments outperform the gradual approach, known as dollar-cost averaging. But this year is off the charts – why guess what’s going to happen?
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Rob’s personal finance reading list…
Never refrigerate bread
Tips from Consumer Reports on how to extend food expiration dates. Cut waste, and visit the supermarket less. By the way, coffee shouldn’t go in the fridge, either. Flour should, though.
Inflation: How big a problem will it be?
A lot of readers have told me lately they worry about inflation being ignited by all the money the government is pumping into the economy to offset the effects of the pandemic. This guide to inflation, deflation and disinflation should set minds at ease, at least until the good times resume.
How to avoid retirement myopia
Way too much retirement advice is tossed out in a general way, even if the needs and priorities of each generation are different. Here’s a different take – retirement guidance for people 25 to 40, 41 to 55 and 56+.
Make your own Starbucks drinks at home
A personal finance blog shares some cheap and cheerful versions of tea, lemonade and coffee drinks.
Ask Rob
Q: Why you haven’t recommended five-year GICs as a possible safe vehicle for a portion of retiree funds? I have $50,000 in one earning 3.25 per cent, a higher rate than one- or two-year GICs or a savings account. It’s true I purchased when GIC rates were higher, but the principle remains the same.
A: I have written a lot over the years about how GICs make a good substitute for bonds or bond funds in diversified portfolio – they’re not as liquid as bonds in that there are stiff fees if you sell early, but they don’t jump around in price like bonds can. GIC rates are also quite competitive with bonds. The best rate on a five-year guaranteed investment certificate in late May was 2.3 to 2.4 per cent, while the yield on the five-year Government of Canada bond was just 0.4 per cent.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
How to report wrongdoing by an investment adviser.
Tweet of the week
Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., takes on those who insist real estate prices can keep going up despite the economic damage caused by the pandemic.
In case you missed these Globe and Mail personal finance-related stories
- How advisers can help jobless Canadians avoid financial pitfalls
- Day-to-day banking proving to be a struggle for some isolated seniors
- A cottage agreement can make sharing a summer home simple
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Rob Carrick