A “normal” tax-free savings account might have a total value around $160,000.
As documented in our TFSA Trouncers series, a few hundred investors have managed to build accounts valued at $1-million or more. These numbers are impressive, but they’re not representative of what’s happening in the TFSAs of everyday investors.
What does a normal TFSA look like?
Adam Shona, an adviser at TD Wealth, has come up with rough answers. If you opened a TFSA when these accounts were introduced in 2009, and made 6 per cent annually, you’d have $158,383 by the end of 2024. A 7-per-cent return would get you $173,093, while an 8-per-cent and 9-per-cent return would produce $189,339 and $207,283, respectively.
It’s assumed here that you contributed the annual TFSA maximum on Jan. 1 of each year. The compounded returns shown are money-weighted, which means the performance is based on the size and timing of the deposits.
Some context for these numbers: Total accumulated TFSA contribution room from 2009 through 2024 is $95,000.
A 6-per-cent return is reasonable to use for TFSA benchmarking if you have a traditionally diversified portfolio with 60 per cent or 70 per cent of its assets in Canadian, U.S. and international stocks and the rest in bonds. More stock market exposure suggests you should benchmark your TFSA using returns set at a higher level.
In the TFSA Trouncers series, the investors featured have often made concentrated risky bets that paid off brilliantly. Most investors would be better served with a more diversified approach that provides less drama on both the up and down side.
An easy way to build a portfolio like this is to use low-cost exchange-traded funds that track major stock and bond indexes. The S&P/TSX Composite Index averaged a total return of 8.4 per cent for the 10 years to Oct. 31, a return you could have captured using various ETFs. Same goes for the S&P 500, which averaged around 15 per cent over the past decade. The FTSE Canada Universe Bond Index averaged just 2 per cent over this period.
Don’t discount bonds based on these past weak returns, and don’t count on double-digit returns from stocks. Best to anticipate on average annual total returns around 6 per cent after fees.