It started with the fear. Then the panic. Then you realized they needed you outraged more than informed.

Meet 1440’s Daily Digest: one daily newsletter covering 100+ sources, edited by hand. No algorithms. By humans. Just the facts, in a five-minute read. It's free, and 4+ million readers already start their day with it.

Join 1440 for free

Hello everyone,

First, some exciting news in Canada that you might have missed.

Second, stock market gets pummelled following the US Midterm election.

Have a great weekend.

Eddie

PS If you prefer to listen to podcast version of this email, please listen here:

Big news in Canada that some of you may have missed….drumroll please!

↓

↓

↓

TFSA CONTRIBUTION LIMIT INCREASES TO $7,500 ON JANUARY 1ST

You were probably expecting something, perhaps, less boring.

But this is far from boring, and actually really exciting since the amount of money you will have in your future if used properly is incredible.

TFSA, short for Tax Free Savings Account, is an account all Canadians can open and use for investing. It was created in 2009 with the goal of helping Canadians grow their investments free from taxation.

No tax on interest, dividends, or capital gains, nor on withdrawals, nor on death when money goes to your heirs.

In my personal opinion, this is the most important investing account for the majority of Canadians to focus on contributing to.

More than the RRSP, which offers tax deferral benefits, along with tax refunds when you contribute, but favours situations where a person is in a high tax bracket today and knows they will be in a lower tax bracket during retirement (because you are forced to withdraw eventually, those withdraws are taxed as ordinary income). Can make a good deal of sense for some (especially if your employer offers an RRSP match), but my priority is the TFSA.

An RRSP can theoretically get much larger than a TFSA due to higher allowable contribution room, but there a problems associated with RRSPs being too big - namely, when you withdraw the money, every dollar is taxed as regular income, i.e. at the highest tax rate. You could be in a situation where your retirement income is taxed at 53%, you lose old age security payments, and furthermore, it represents an estate problem. Since when you die, your entire RRSP balance is treated as income on your dead income tax return. A million dollar RRSP is all of sudden worth only $500k to your heirs.

The FHSA, First Home Savings Account, is another useful tax advantaged investing account which essentially combines the benefits of the two former accounts, but has a limit of $40,000 and is specifically meant for first time home buyers, or owners that have previously owned but have otherwise not owned a home for the previous 4 years.

RRSP and FHSA are useful, to be sure, but I still prefer the TFSA for the sheer magnitude of tax free and flexibility benefits that come with it.

Anyway, let’s get into some numbers.

Assuming you start contributing $7,500 every January, and earn a market 10% return for 40 years, your future portfolio looks like this:

Future value of $3.65 million, vs total contributions of $300,000. All completely tax free growth.

Or, let’s say you are 37 and plan to live to 77 👀👀👀. 37 today means you have been 18 since the TFSA inception in 2009, which means the maximum allowable contribution room is $116,500 as of January 1st, 2027 (assuming you’ve never funded it before).

You fund the entire $116,500 on January 1st, and continue max funding $7,500 every January, earning a 10% compounded market return, your future portfolio looks like this.

$8.58 million, on total contributions of $409,000, tax free. Maybe you’re married, you and your spouse both do this…you get $17 million, tax free.

The numbers are indeed staggering, but the math checks out - don’t shoot the messenger.

Maybe you want to argue against using a 10% return in the calculation. Use 8% then. Even if you invested at the peak in 1929 right before the Great Depression, the 40 year return was 8.5%. Just make sure to use it, or you will definitely lose it.

Not everyone is in a position to max fund every year, I get it. Just do your darndest to do so. Budget, cut the debt, make your own meals, bus to work, whatever you need to do, just do it. But if you tell me that you can’t while you and your wife have two $800 BMW lease payments, then no, I don’t get it.

Also, if you are a parent with adult kids and fortunate enough to be in a position to help, consider gifting them the amount required to max fund their TFSA. Gifts in Canada are tax free, so you would be moving a portion of your “family bank” investments that are subject to taxes (including death taxes) into this wonderful tax free investing account.

Just make sure they get rid of those BMWs first.

Stocks are getting killed…..

Volatility index is up 50%

The massive blue wave has put pause into the enthusiasm.

Tech and especially Al and related firms are down 10-30% in a week, some down 70% over 6 months.

This hurts investors.

This hurts investors that had chosen to bet on individual companies and individual trends, with most or all of their portfolios.

They saw the incredible performance and decided to chase into it, for the desire to make a lot of money quickly. This hurts them a lot. Now they wonder what to do, and don't have many good choices. Buy more to "average down" and risk over exposing even more, sell and crystallize permanent losses, or do nothing and simply wait for the market gods to return to their favour. It's not easy being in this position. I feel for those individuals.

But many of you are invested in broad market ETFs, like the SP500. With all the carnage happening, we must put it in perspective.

SP500 is down 3% this week. It is still up 8% this year. It is up 30% over two years. And up 60% over 5 years. For long term investors, it need not matter the short term movements, they are random and about 50% of the time negative on any given day.

Overtime however, SP500 has never had a 20 year losing period, ever.

In any case, down markets by definition are a good thing for the long term investor. More shares, at lower prices, and you reap the benefits in the years hence, as is the point of “investing”.

For what little it’s worth, according to JP Morgan, the S&P500 has been up one year later after every midterm election since 1950, with an average gain of around 15%.

Regardless of the short term impact, and regardless of the sitting president, the American stock market is truly something special, I hope you own the whole thing.

As mentioned last week, I've been mulling around the idea of putting together a small, live investing and personal finance course for readers of this journal. A few of you have responded, and I will keep asking until we get several more interested….

Unlike my existing Simply Investing Masterclass, this would be more interactive. Perhaps 4-6 weeks, weekly online sessions, open discussions, questions, and some practical exercises.

The idea is to help people better understand their investments, make smarter financial decisions, and build confidence managing their money and planning for retirement.

I'm curious who is interested…

If so, just reply to this email and let me know. I'd also love to hear what topics you'd most want covered.

Nothing formal yet, just exploring the idea!

“Today was the worst market decline since the last one you don’t remember or care about anymore.”

—Morgan Housel

What is something you have always wanted to do but keep putting off?