Cash is not king: (Still) A better investment strategy for your TFSA – by Steve Lowrie

The good news is that Tax Free Savings Accounts (TFSAs) are finally garnering wider use. According to BMO Financial Group’s 2013 Annual TFSA report, nearly half of all Canadians had a TFSA, up 23% from the year prior. And acceptance continues. BMO’s most recent 2014 report estimated that contributions were expected to increase by 34% by year-end 2014 – and that was before the April increase on allowable contributions.

The bad news is that the series of surveys also indicate two important gaps: first, many participants were unfamiliar with the maximum contribution limit and were incurring penalties by exceeding it. (Hopefully this is something that will be rectified by the now-increased limits.) Worse, most contributions – to the tune of 70–80 percent of them – are sitting in low-earning cash or cash-like investments, instead of being put to better use in our capital markets.

Why is this important? In my opinion, these results prove that the vast majority of people are under-utilizing the tremendous long-term benefits of these TFSA plans as an important way to build durable wealth for their retirement years.

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