It’s a common question that many Canadian TFSA users have as they enter the last 10 or so years before their expected retirement date: what does your average TFSA look like when one officially enters their 50s? Indeed, it’s quite surprising when you consider that most 50-year-olds haven’t made up for lost time by making every contribution they could have.
Of course, the cost of living crisis could make it even harder to get to that lifetime cumulative upper limit. Either way, though, the main takeaway here is that your average 50-year-old Canadian investor probably has way too much unused contribution room, perhaps north of $60,000 worth.
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The typical 50-year-old’s TFSA isn’t as large as you think
That’s a problem for those who have cash that’s just sitting in non-registered accounts, collecting minimal amounts of interest. And as for what’s in those TFSAs, it’s a good mix of a wide range of investments, from stock and bond ETFs to cash and GICs. In my view, the best way to position your TFSA for an eventual rich retirement is to have a sizeable position in equities. They don’t have to be the riskiest equities that have all the momentum and AI bubble fears behind them.
But, at the very least, I do think investors should be thinking about shares of companies that have lengthy track records of doing well, far better than the kinds of returns one can generate outside of the world of equities or even REITs. Low risk tends to accompany low rewards, and no risks (like those offered by cash and GICs) are pretty much met with no real returns when you adjust for inflation.
And, in some instances, one might actually generate a negative real return when inflation marches higher. Indeed, so much for guarantees! In any case, regardless of your age, Canadian TFSA users should look to make up for lost time and use the unused contribution room to invest.
What 50-year-old TFSA investors ought to do
At the end of the day, it should be more about how an individual investor optimizes, rather than how one stacks up versus the averages, because, right now, I can’t say that I’m a huge fan of where the typical TFSA stands.
Whether it’s a lack of equity exposure, heaviness in savings, or something else, it’s a shame to surrender the tax-free compounding advantage, which, I believe, is best harnessed via investing in stocks over the long run.
As for what to invest in, I’m not against TSX Index funds or even a sector ETF such as the BMO Equal Weight Banks Index ETF (TSX:ZEB), which provides equal-weighted exposure to Canada’s Big Six banks. There’s been heightened anxiety when it comes to the bank stocks, thanks to their impressive runs.
But I don’t think it’s warranted, and for those chasing a top in the banks, I think one could find themselves waiting quite a while. That’s not to say they’ll run forever, but, at the end of the day, I still like the risk/reward, even as the yield on the ZEB, now at 2.3%, is on the low end of the range.
