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TFSA/RRSP- Tax shouldn't be your investment focus


When it comes to your investments, ideally you want to utilize a tax efficient strategy, however this should not be your immediate focus.  Priority number one is protecting your capital, and second is to grow it, taxes is generally the last consideration .  With all the "buzz" around the TFSA limits increasing to $10,000 for 2015, and now decreasing with a new government in place, there has been a lot of discussion over the limits and what they should be.

At the end of the day it doesn't really matter.  The program was set up to encourage people to save for retirement and grow their investments on a tax deferral or tax free basis  ( RRSPs and TFSAs respectively) which I am all for. However, investor focus needs to be placed on where your investment dollars are going first, and taxes last.

As accountants, we understand the benefits of minimizing taxes on your investments, and business ventures.  However it doesn't make much sense to start with tax considerations if your investments are not protected and the strategies are not in place to facilitate and sustain growth.  This is where capital is generated and this is where the focus needs to be, not on taxes.  At the end of the day it comes down to protecting capital, and increasing cash flow.

I think the vast majority of retail investors would be better off, if there took the time necessary to really understand the types of investments and asset classes they are invested in.  This will develop their understanding on world capital markets to ensure strategies are in place to project and reasonably grow their capital.

For example:  

Where the U.S and Canadian equity and real estate market valuation levels are ( up substantially since the last financial crisis in 2008) today, now is not the time to chase returns and over-expose your capital to these markets.  As we know markets are cyclical, and we have had a good 7 year run in equities and real estate ( especially in Canada), and with that being said the risk of a downturn in the markets increases heading in 2016.

Look at this article on Carl Ichan's net short position as of May, 2016

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