| There is evidence that consumers sometimes | | | | savings account or invested in stocks and mutual |
| make bad investment choices. In the following | | | | funds. If you decide to put your savings in the |
| points there are valid arguments to support the | | | | TFSA, eventually your money will grow due to |
| need to save. | | | | capital gains, dividend, or interest and this income |
| · For example many studies in U.S. have | | | | will not be taxed. After your retirement you will |
| proven that U.S. equity risk has a large | | | | have a big secure source of money to rely on |
| idiosyncratic component due to lack of portfolio | | | | 2.Tax advantage |
| diversification skills (Goetzmann & Kumar, | | | | Think about how much tax you pay now and |
| 2008). They save but they do not save well due | | | | compare it to what you will pay when you retire. |
| to lack of knowledge or low diversification skills. | | | | Obviously you will be paying less tax after |
| · Similarly many Canadian households are | | | | retirement as you will not have a job. A TFSA |
| suffering with very high levels of debt. People are | | | | allows you to grow tax-free investment income |
| living a 'credit card' life with no actual money | | | | (i.e., interest, dividends and capital gains) earned on |
| saved in personal accounts. | | | | the contributions made using already taxed |
| · There is a need to encourage people to | | | | income. |
| save. A study recently conducted for Scotia bank | | | | 3.Contribution and withdrawal |
| has found that 61 per cent of Canadians are | | | | Withdrawals from the account are tax-free which |
| interested in learning more about the new Tax | | | | makes them popular. Even if you are unable to |
| Free Savings Account (TFSA). Of the sample of | | | | meet the golden contribution of 5000$ every |
| respondents currently without a TFSA account 40 | | | | year, the balance contribution would be rolled over |
| per cent said they are interested in opening an | | | | to the next year. Hence if you are able to |
| account prior to January 2009. | | | | contribute only 3000$ to your savings account |
| How can a person develop an investment | | | | this year, the following year you can save as |
| strategy? How can he make informed decisions | | | | much as 7000$. The accounts can be opened by |
| about the right investment choices? In order to | | | | individuals planning a smooth retirement, couples |
| reverse the situation and help people save more | | | | planning for a family or their children's education, |
| the Canadian federal government announced the | | | | and small business owners, etc. |
| introduction of a tax free savings account (TFSA). | | | | 4.Relief from dealing with volatile markets |
| Here are a important pointers to think about the | | | | If your investment strategy is to consistently |
| tax free savings account as an investment choice. | | | | save small amounts over a period of time with a |
| 1.The TFSA model | | | | stable rate of interest you must consider opening |
| The general idea of a TFSA is simple; you pay | | | | a tax free savings account. By setting up a |
| income tax on your money. Then what is left | | | | tax-free savings account you are spared the pain |
| after that may either be spent or put into a | | | | of dealing with volatile stock markets. |