Tesla vehicles line a parking lot at the company's Fremont, Calif., factory, on Sept. 18, 2023.Noah Berger/The Associated Press
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.
In 2015, Kevin sold the ETFs in his tax-free savings account and put the proceeds into the shares of one company, Tesla Inc. TSLA-Q. As TFSA contribution room became available in subsequent years, he added to the Tesla position.
Kevin wanted to take on more risk to capture larger gains that would enable him to reach his goal of retiring by the age of 55. “I was definitely on board with the quote from Warren Buffett: ‘Diversification may preserve wealth, but concentration builds wealth,’” said Kevin, now 51 years old and an IT executive in the mining industry.
He picked Tesla stock because, being an IT professional, he could understand many of the technical aspects of its vehicles, as well as the appeal of the features they enabled. He liked, for example, how Tesla’s software could be updated remotely.
He was also impressed with Elon Musk’s success at companies like SpaceX, and thought he was a charismatic leader who got things done. He also liked that Mr. Musk was building out a charging network to support adoption of Tesla’s electric vehicles.
But what if his risk-taking ended up losing a lot money? “Yes, I thought about that,” Kevin replied. “My wife has a very conservative investment portfolio, so in terms of our combined portfolios, we were still reasonably prudent. Plus, I could make up for the losses by working past my target retirement age of 55.″
From 2015 to just before COVID-19, the price of his Telsa shares more than doubled to push his TFSA over the $100,000 level. During COVID-19, the shares blasted off like a rocket, driving his TFSA to nearly $620,000 by April of 2022 – at which point it entered a volatile downward trend. Kevin rode the roller coaster down, bailing out in the first quarter of 2023 when his TFSA stood near $425,000.
About this time, Kevin had started a new job as director of IT for a junior gold-mining company in British Columbia. He took the job, in part, because he felt geopolitical and macroeconomic uncertainties were likely to drive up the price of gold, and by extension the price of the company’s shares. The feasibility study he read about the company’s mine project also convinced him that its prospects were good.
Most of the proceeds from the sale of his Tesla stock were rolled into the shares of the junior gold miner. The remainder was spread over some large-cap companies to increase diversification and tone down risk since he was getting closer to retirement.
With production at the company’s mine poised to start in a few months, and the price of gold having run up so much, Kevin’s shares in the mining company have appreciated strongly. The value of his TFSA now stands at $1.2-million (verified by screenshot).
When production at the mine starts up, Kevin will start reducing the size of his investment position. His focus will switch more toward preserving wealth and increasing diversification in preparation for his retirement.
He will also work on a plan for drawing income from his TFSA and RRSP portfolios during retirement. The withdrawals from his TFSA have the extra advantage of incurring no taxes, so they can be used to help manage his tax burden.
What an expert says
Providing his thoughts on Kevin’s TFSA is Ross McShane, a retired financial planner with the CIM, CPA and CFP designations and over 40 years experience. He also teaches a college course on financial planning and as a semi-retirement project, is launching an advice-only financial-planning service.
I applaud Kevin for his success in selecting his winners. So far, he has been successful with his TFSA, but the tide can change in a hurry.
A financial planner would be able to run a simulation to determine the impact on his retirement goal if his current position in the junior mining company crumbles. Knowing this, he could consider reducing his exposure sooner than later but still leave a portion that, if lost, will not affect his ability to hit their goals.
Kevin says he has invested some of the Tesla proceeds in companies other than the junior miner. The selections should make sure they produce the desired levels of diversification and capital preservation. This can be achieved by spreading investment holdings across different industries and other market segments in a way that brings their correlations down to a level suitable for the risk tolerances of Kevin and his wife.
He states that his wife’s portfolio is conservative and that combined, they are still “relatively prudent.” What might help is a plan that determines, among other things, the rate of return needed to achieve their retirement goal. Better decisions can then be made in terms of the target asset allocation and asset location strategy. Also, it is important to assess the sector breakdown and the weighting of each holding.
Kevin should also give some thought to the decumulation phase when they retire. One thing to determine for himself and his wife is a target tax bracket and how much to draw from RRSPs to achieve this. Any additional funds should be drawn from a non-registered account if one exists, before the TFSAs. Ideally, the TFSA would be available for major purchases, or as a vehicle that grows tax free to form part of their estate.
Also see:
Rob Carrick: Million-dollar TFSAs are a thing, but what’s a normal amount to have in your account?
Rob Carrick: 29 Canadians have TFSAs worth $5-million or more. Don’t feel bad if yours is not in this league
TFSA Trouncers: The complete collection so far
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.