A TFSA is NOT an Investment

A TFSA is not an investment! An important distinction you MUST understand.

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Hey, a common question I’m asked is: “Should I invest in an RRSP?” Another one is: “Are TFSAs good investments?” How about a third? “Which is a better investment: An FHSA or a TFSA?” Or this one: “Should I invest in a GIC or an RRSP?” Hmm. Many Canadians still don’t quite get (or don’t get at all) that RRSPs, TFSAs, FHSAs, and RESPs are not investments. Technically they are accounts. Accounts that are registered with the government. But the best way to think of them is this: They are containers. What do they contain? Investments. Again, they are not the investments. They hold the investments. They contain the investments.

So, why bother with the container? Why not just hold the investments in an unregistered account? Well, think about it: An unregistered account is a container, too. It’s an account that contains investments. It’s not an investment. Containers. So you should now realize that the common question: “Should I invest in a GIC or an RRSP?” doesn’t even make sense. Again, an RRSP is not an investment, it’s a container. A GIC is an investment, yes. You could invest in a GIC and keep it in your RRSP container. “Should I invest in equities or in a TFSA?” Again, doesn’t make sense. A TFSA is a container. You could invest in equities and keep them in your TFSA container.

Should you? No idea. I don’t know you, your age, your risk-tolerance level, your objectives, etc. I’m just trying to make sure you understand this extremely important distinction between an investment and an account/container, that so many clearly don’t get. Now, an obvious question is: “Oh, okay, I get it now, but why would I use a registered container instead of an unregistered one?” Because registered containers are given preferential tax treatment. Preferential tax treatment, that can make a huge difference to your bottom line. For example, investments in the TFSA container grow free of tax and come out of the container free of tax.

That’s a good container. We like that container. If you don’t have enough money to fill up all of these registered containers, is the TFSA the best one? Not always. The TFSA is really good but not always the best for you. And you know what that means? Yep, you’re going to have to watch more of these videos to learn about that. Try to contain your excitement. See what I did there?

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