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This is TFSA Trouncers, a series that profiles Canadian investors who’ve accomplished incredible feats with their tax-free savings accounts. If you have grown your TFSA to half a million dollars or more, fill out this form. You may choose to be anonymous, but we do require an e-mail address and may request a screengrab of your portfolio for fact-checking purposes. We also encourage TFSA investors who have made mistakes or turned in a poor performance to also fill out the form.
Mary started her tax-free savings account when they first came out in 2009 and made the maximum contribution allowed each year, for a total of $102,000 to date. Now, her TFSA is worth nearly $300,000.
That’s a pretty good sum for a farm girl who didn’t get much of an education and is now a centenarian. Moreover, she put hardly any effort into building the TFSA – spending little more than an average of an hour or two each year.
Mary married in her twenties and took up residence with her husband in a small town in Southern Ontario. When her children were old enough to free up some time for her, she began working at the jewellery store in town. She managed to save a lot of her income, depositing it in a bank savings account.
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Jumping forward several decades when she was a lively octogenarian, Mary got her TFSA going with a visit to the bank. The financial adviser wanted to funnel the annual contributions into some “aggressive” funds but with the encouragement of her daughter and son-in-law, she opted instead for some index funds that had much lower annual expenses: the RBC Canadian Index Fund and RBC U.S. Index Fund.
This TFSA felt like a good solution for her. She was comfortable with the people she knew at the bank and liked keeping things simple and easy.
The automatic reinvestment of dividends was a particularly appealing feature of the funds since it would enhance the annual compounding of returns without any effort on her part. In short, Mary didn’t have much to do overall. The index funds in her TFSA can be run on autopilot, yet were still low-cost, tax-free and lower-risk (because of a diversified portfolio).
The TFSA contributions came out of her savings account at the bank. After her husband passed away about 15 years ago, there were extra expenses to meet but they were covered by withdrawals from her savings account. She never withdrew any money from her TFSA and was content to let it compound without interruption.
Some of Mary’s winners
The RBC Canadian Index Fund tracks the S&P/TSX Capped Composite Total Return Index and has a management expense ratio of 0.66 per cent. Since 2009, the dividend has more than doubled, to $1 per unit in 2024. The closing unit price on Oct. 1 was $57.07.
The top ten companies in the fund are: Royal Bank of Canada (RY-T), Shopify Inc. (SHOP-T), Toronto-Dominion Bank (TD-T), Enbridge Inc. (ENB-T) Brookfield Corp. (BN-T), Bank of Montreal (BMO-T), Bank of Nova Scotia (BNS-T), Canadian Imperial Bank of Commerce (CM-T), Agnico Eagle Mines Ltd. (AEM-T) and Canadian Pacific Kansas City Ltd. (CP-T).
The RBC U.S. Index Fund tracks the S&P 500 Total Return Index and has a management expense ratio of 0.66 per cent. The total distributions per unit were only $0.23 in 2024 but the capital gains have been strong. The closing unit price on Oct. 1 was $57.58.
The top 10 companies in the fund are: Nvidia Corp. (NVDA-Q), Microsoft Corp. (MSFT-Q), Apple Inc. (AAPL-Q), Amazon.com Inc. (AMZN-Q), Meta Platforms Inc. (META-Q), Broadcom Ltd. (AVGO-Q), Alphabet Inc. Class A Shares (GOOGL-Q), Alphabet Inc. Class C Shares (GOOG-Q), Tesla Inc. (TSLA-Q)and Berkshire Hathaway Inc. (BRK-B-N).
Mary’s recent investment moves
Unfortunately, Mary’s health slipped over the summer this year, although in recent weeks she has been on the mend, back to her old self. But this raises the question: What happens to TFSAs when the holder is no longer with us?
What Mary has done is name her daughters as the beneficiaries. The good news is that the TFSA assets will bypass Mary’s estate and go directly to her beneficiaries, so probate fees can be avoided. Meanwhile, TFSA rules require that beneficiaries receive the funds as a one-time distribution. They can protect themselves from future tax owing by depositing the departed’s TFSA funds into their own TFSAs, provided there is ample contribution room. If the beneficiaries don’t have room in their own TFSA, they won’t have to pay tax upon receiving the funds, but any further growth will be subject to taxation.
The other option is to name a successor-holder, which maintains the TFSA’s tax-sheltered status in the hands of the successor-holder. But only a spouse or common-law partner qualify for this designation.
Mary’s TFSA didn’t grow to more than a million dollars like some of the other folks profiled in the TFSA Trouncer series. But most of them spent a lot of time and effort getting to these lofty levels, whereas Mary greatly minimized the demands on her time and energy, yet still received a good return at a much lower risk level thanks to diversification.
Larry MacDonald is a regular contributor to the Globe and Mail. He is also the author of The Shopify Story and writes a blog on Shopify, Shopify’s Journey
Editor’s note: This article has been updated to clarify that while TFSA rules require that beneficiaries receive the funds as a one-time distribution, beneficiaries can protect themselves from future tax owing by depositing the departed’s TFSA funds into their own TFSAs, provided there is ample contribution room.