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, drop us an e-mail at dakeith@globeandmail.com or 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’ll also be profiling people who haven’t been so lucky with their TFSAs.
Doug and his wife, Jennifer, are 75-year-old retirees living in North Delta, B.C. They met in high school and are still leading active lifestyles together. It appears their marriage is, as they say, a match made in heaven.
It also seems Doug knows how to pick not only life partners but stocks. He has grown tax-free savings accounts for himself, Jennifer and their two adult children to tidy sums ranging from $570,000 to $850,000. Combined, the four TFSAs hold $2.9-million (verified by screenshots).
The turning point came in 2008, the year Doug retired and the stock market crashed. His mutual funds took a beating, and he dumped them to branch out on his own into growth stocks.
Four technology stocks account for most of his track record: Apple Inc. AAPL-Q, Amazon.com Inc. AMZN-Q, Microsoft Corp. MSFT-Q and Nvidia Corp. NVDA-Q. Each TFSA still holds the four stocks with large but different weights.
One main reason for investing in Apple was that he and Jennifer like its devices and were “picking up vibes that people were becoming fans.” He also saw how Apple was on a growth track as it plowed cash flow from its core strengths into new opportunities.
“Many people hate Apple because of its proprietary approach,” Doug said. “I noticed that when people dislike a company, it’s often because that company is ‘ripping folks off.’ Often banks get the same treatment. I say that may be a good reason to buy.”
As for Amazon.com, it was another case of investing in a company with services that turn people into fans. Amazon.com was also routing cash flow from its dominant market positions into new markets. As for Microsoft, it remains a hold because of its entry into AI.
Doug freely admits that his Nvidia bet was “mostly luck.” He began investing in the company some time ago, not because he anticipated the craze for Nvidia’s AI chips but because an avid gamer had mentioned that the company’s graphics processing units (GPUs) were great for gaming.
Yet Doug’s lack of diversification and conservative holdings is not a worry. If losses occur, they will not inflict a hardship because he and Jennifer are financially secure. They have defined-benefit pensions, registered retirement income funds, nonregistered accounts and a mortgage-free home.
Not only are the couple’s retirements on solid ground, but so are their children’s lifestyles and inheritances. In fact, the couple have already given $1.3-million to their son, who used the money to buy a house for his family.
As for their daughter, she was registered as a co-owner on her parents’ principal residence. Since she has lived all her life with them owing to health reasons, the property will pass solely to her and the equity will remain tax-free in her hands.
Doug doesn’t plan to hold tech stocks forever. Since the era of rapid growth is bound to wind down at some point, he says, he will be looking into less speculative shares. For example, he is thinking about following “Warren Buffett into railways, insurance and oils.”
Many people do not have the financial security to take risks like Doug has, so it makes more sense to diversify and rebalance. The high valuations of tech stocks are subject to sharp declines that can lead to large losses, like those experienced by Nortel and BlackBerry shareholders.
What an expert says
We asked Stephanie Douglas, portfolio manager at Harris Douglas Asset Management, for her thoughts on Doug’s TFSAs.
“Doug has obviously done a fantastic job of growing his family’s wealth. While there is concentration risk in his portfolio, his investment philosophy makes a lot of sense. It is always best to invest in companies that you understand. He has purchased companies that have products that he is familiar with and sees value in their long-term growth. He also continues to research the companies he is holding to stay on top of any changes.
“While it would be wise to diversify his portfolio, I agree that there is no need to be more conservative with his TFSA if this is his ‘play money.’ I would, however, encourage Doug and his wife to do regular financial planning with a CFP® professional to ensure that they continue to stay on track for their retirement goals and that their risk tolerance aligns (i.e., does his wife have a similar risk tolerance).
“Ideally their plan should include a Monte Carlo simulation to stress test the plan, given the volatility in their portfolio – something that Doug has experienced firsthand with the 2008 stock market crash. The income sources that currently fund their retirement (defined-benefit pensions and registered retirement income funds) are taxable, so it would also be wise to have access to funds that are not taxable (TFSA) for unexpected large purchases such as a new vehicle, furnace etc.
“Having an emergency fund of three to six months of living expenses is also prudent, but pulling funds from their RRIF account if they need to replenish their emergency fund could have significant tax implications. Doug also mentions that he and his wife do not need their TFSAs for their retirement, but the asset allocation may not be suitable for his children based on their risk tolerance or time horizon. His children should also do regular financial planning.”
Larry MacDonald is a regular contributor to The Globe and Mail and author of a new book, The Shopify Story: How a Startup Rocketed to E-commerce Giant.