Set SMART Goals in 2018

Edited Photo. Source: Flickr - Anthony

Last week, as planned, I dutifully dumped $11,000 into our Tax Free Savings Accounts (TFSA). That's $5,500 for my wife and $5,500 in my own account. As usual, the Bill Payment from our chequing account to the Questrade TFSA accounts takes a few days to settle before it becomes available in the TFSAs.

I get a little lazy when it comes to financial stuff and investing when I'm on vacation, but now that we're back it was time to make our actual investment purchases.

In the past, I used our TFSAs as a bit of a play account. My rationale was that transactions are not taxed in a TFSA, so this was the best place to buy and sell individual stocks. It was also a leftover symptom of the days where all we had were TFSAs and RRSPs. But I'm making a pledge here today that those days are over.

From this year forward, there will be no more single stock buying and selling or "playing" in our TFSAs or elsewhere. I'm moving to a straightforward bi-weekly peek that investing should be. ETFs only. That's it.

It's not that I lost money playing with individual stocks. In fact, miraculously I somehow pretty much kept pace with a buy-and-hold Canadian Couch Potato strategy over the years. In 2016 a bet on Canadian bank stocks resulted in me earning 18% returns.

Our combined TFSA accounts today are worth around $160,000! I'm not complaining about the results. Instead, it's just a life choice and sustainability choice.

Analyzing Stocks vs Focusing on Strategy

When a person buys individual stocks, they often fool themselves into being a sort of amateur stock analyst. I did this, I am a fool.

Reading MD&A reports, financial statements, analyzing PE ratios, checking moving averages, following writers on Seeking Alpha. The whole works.

However, if I'm really honest with myself it's not stock analysis which I enjoyed. Instead, I enjoyed being right. Analyzing a stock, making a purchase, and seeing it go up in price. It was a type of self-validation.

This type of self-validation made me emotional about stocks. It wasn't the outward, plainly visible type of emotion where I behaved like a bipolar depressive individual depending on the stock performance that day.

It was more of a deep smugness when things went my way and a form of worry when they did not. This is foolish.

Instead, I'm going to focus intently on strategy. I'm continually working on cleaning up my strategy so that it requires less work and remains within the boundaries of my loss parameters.

I'm not going to become a Couch Potato buy-and-hold investor. Why? Because it doesn't fit my loss parameters. Also, the traditional form doesn't really lend itself well to leverage and careful use of leverage is an important part of my investment strategy. (Something I will share more on in the future).

Setting A SMART Goal for 2018

One thing I've learned in my investment journey is the importance of setting clear goals. I use the SMART principle because it worked for us.

Time Limited

In the past few months I created spreadsheets to track our net worth since marriage. I used it to create the nice graph on the About Daren page.

I was amazed to see the results of SMART goals there. In 2010, we had about $50,000 to our name. It took four years to double that to a little over $100,000. During these four years I hardly did any investing at all and our savings were pumped into our house and our education costs. Meanwhile our investment accounts foundered. We didn't have goals other than to stay out of additional debt and pay our mortgage and car payment.

However, in 2014 we started to get more serious about investing. We started by putting some money into RRSPs and TFSAs. As a result, we doubled our net worth that year.

In 2015, we set the goal of topping up my RRSP and TFSA accounts until they were maxed. It took all year, but we ended up more than $100,000 wealthier that year.

In 2016, our goal was to max my wife's TFSA, keep up with my TFSA and RRSP, sell our house, and start a Cash/Margin account. Again, we saved around $50,000 and ended the year more than $100,000 wealthier and debt free!

In 2017, our goal was to save $60,000 and focus on strategy, including introduction of leverage. We beat our goal by October and ended the year over $200,000 wealthier!

In 2018, our SMART goal is to once again save $60,000. This time I would like to refine our use of leverage and make our investment strategy simpler. That's a little vague, so more Specific and Measureable my goals are to have every position leveraged (by no more than 2:1) and to buy or sell a position no more than once every two weeks (not including stop-loss sales). Given that we've dumped $11,000 into the TFSAs so far, we have $49,000 of saving to go and I'm excited to see the progress!

Your Goals for 2018

While I was inspired by others in my journey, I am not endorsing our path for everyone else out there. People have different life circumstances to deal with and I understand my wife and I are fortunate with our dual income, no kids situation.

This year I encourage you to set a SMART financial goal for yourself. Try to max out a TFSA account ($57,500 cumulative limit if you were 18 or older in 2009). If you are paid bi-weekly, it's an ambitious $2,211 per paycheque.

If that's too much, at least put in the increase for 2018 ($5,500). If you are paid bi-weekly like many, it would take $211 per paycheque to hit that goal.

Open up a Questrade TFSA and begin by purchasing an ETF. A simple, broad global stocks fund is a great place to start. Right now XAW.TO is arguably the best choice out there and last year it returned 15.88% after fees and taxes. That handily beat the 1% or less that your big bank TFSA pays you.

Side Note: I've updated the portfolios page and last month's update now that iShares has released their December returns. The Dual Momentum call is still the same as XEF.TO (Developed Countries Stocks) for January.

I've also cancelled my email service to save costs as my 1-year free trial expired. To get hold of me, please leave a comment.

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Investment Account Series: The TFSA

As part of this series, I want to delve into the three main types of accounts that most Canadians will be using to save money for the future. Of course many Canadians choose not to save at all, instead focusing on buying a super-expensive house and struggling to pay the mortgage and home ownership costs. But at The Rich Moose we're different!

If there's anything I have learned over the years, nothing—not even sacred home ownership—replaces proper saving in retirement accounts. Sorry folks, your house will not pay for dentures, vitamin D vacations, and Depends!

Disciplined investing in retirement accounts helps you accumulate wealth through the power of compounding interest.

There are three primary accounts that Canadians can use to save for the future:

  1. TFSA
  2. RRSP
  3. Cash/Margin

For the first post of the series, I will dive into the Tax Free Savings Account (TFSA) because it's the best place for the majority of Canadians to save for retirement. I naturally would prefer we call it the Tax Free Retirement Account, but you just can't help politicians and the big banks so TFSA it is.

The TFSA is the most misused retirement account without a doubt. Instead of using TFSAs to their full potential, the vast majority of Canadians who have actually bothered to open a magical TFSA just plunk their money into a big bank TFSA which acts like a Not-So-High Interest Savings Account. Current interest rates are a phenomenal 0.5%. If you were 18 in 2009 (when the TFSA was introduced), you can contribute a cumulative total of $52,000 in 2017. Your interest on that for 2017 will be a pitiful total of $260.

What most Canadians don't know is they can actually use their TFSA to invest in anything that you could buy within your RRSP. The TFSA is a vehicle for investments, not a product in itself. If you open a TFSA with Questrade (like I do), and invested in ETFs following a standard growth portfolio of 80% stocks and 20% bonds in 2016 (when you could have a contributed total of $46,500), you would have earned $5,800 in tax-free investment returns last year.

The true magic of the TFSA comes with time and compounding interest. In fact, if you simply max out your TFSA every year from the time you're 18 until 65, you could amass a truly amazing amount of completely tax-free wealth which could generate a nice amount of tax-free, non-reportable income.

Let's assume the TFSA continues to be simply adjusted for inflation and you will turn 18 in 2017. By investing in a passive Growth Portfolio every year, which should generate an inflation-adjusted return of around 6% annually, you could have approximately $1,400,000 in your TFSA when you are 65 years old.

In retirement withdrawing 5% of the portfolio each year, you could take out up to $70,000 per year tax-free. Multiplied by two for a couple and you could have a truly luxurious tax-free retirement!

Once you have a self-directed TFSA account open, all you need to save is $105.75 per week to max out your TFSA this year! Maxing out your TFSA should be your first financial priority each year and it's never too late to start.

Comments & Questions

All comments are moderated before being posted for public viewing. Please don't send in multiple comments if yours doesn't appear right away. It can take up to 24 hours before comments are posted.

Comments containing links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.