Investing

Absolute novice wanting to buy TFSA, does it make sense?

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  • Apr 16th, 2015 6:23 pm
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ksgill wrote: If only we had more posters like you on this board, we would have nothing to discuss! We should all thank you for doing the research before joining the forum so you won't bore us with questions. Thank you!!
Oh I'm sorry for almost robbing you of your opportunity to shine - after all, school teachers would lose their jobs if all the kids were home-schooled and went straight to university :)

I apologized to the OP btw - after realizing it wasn't his fault that I've already bought CAD and US ETFs for my husband's TFSA and they went down, but decided to wait for a better price on XEF and it held up... But please spare me the lecture as I was bored with your posts before I even joined - wondering why don't you open a Sunday school so you could share your interpretation of "the bible"? :)
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ksgill wrote: US equities are 50% of the world market and Canada is ~4%. If you invest only in Canada, how are you diversified? One could argue that TSX is strongly correlated with the banking and energy sector, does that mean that all once needs to hold a few stocks from these sectors? There are no "trading fees" to buy e-series funds and for that matter brokerages like Questrade allow free ETF trading.

On a different note, justaskthescientician, are you a passive index investor? How long have you been investing for? Just curious.
You're basically taking a point of mine out of context by not considering what else I said. My primary reason listed there is that he's probably already adequately exposed to the US market through his company RRSP. Obviously I don't know the particulars. I'm just offering advice based on what I know and what is probably the case for him.

Questrade offers free ETF buying, not selling. Not to mention there's other trading costs, namely spread. Essentially irrelevant though, if the OP is planning on holding for a long period of time, as I also acknowledged above. But the OP probably plans on further contributing. If he's continually adding to his positions, then he's going to want to minimize how many positions he has.

TL;DR - I'm by no means novice, have done seemingly risky strategies successfully, and now am mostly a value investor, with an appetite for risk and quite a bit of money to throw around.

I've been investing since 2009. I've had a good understanding of investments since I was in grade 11, which was 2003-2004. I saw the opportunity in 2009. I put $10,000 of my student loan money (which I could actually afford to lose because a) I was a professional school student with lots of student loan available to me and b) I was well on my way to a good career) in XLF, the financial sector index ETF. Sold it in 2011 at like a 30% gain.

I also day-traded FAS/FAZ, the 3x leveraged financial sector ETFs (FAS being the bull, FAZ being the bear) from 2009 to 2011. I followed a strategy with that for four or five months, using simple statistical methods, before finally going ahead with it. I started with $15,000 in a margin account. Yes, it was risky. Again, I could afford to lose that money too. I made money off that. A fair bit of money. I won't go into the numbers because a) it's complicated (I got 25k/year in student loans, so I continued adding more funding as I got more student loans) and b) you'd call bullsh!t. I skipped A LOT of classes for that, and I didn't work at all, not even during the summers. It was fun/thrilling. Not something I could do for very long (too stressful), and it was a strategy that I'm surprised worked for as long as it did, though I was obviously hoping it would work longer.

It was simple as f*ck. And worked because the market was volatile during that time. Basically, I'd look to buy in the morning. If FAS went up 1% within the first 45 minutes of trading, I'd buy it. If it went down 1% in the first 45 minutes, I'd buy FAZ (the inverse ETF to FAS). I would hold until I saw either a 1% gain or a 1% loss, or until 12:30PM ET, when I would sell regardless. If FAS did not rise 1% in the first 45 minutes of trading, I simply wouldn't trade that day. I'd just pack up and go to class.

I was extremely disciplined with the strategy. You may think of it as being zero-sum. That is, I'm just as likely to see a 1% loss as a 1% gain. That was the lure of the strategy: if it was a bad strategy (i.e. the market was efficient and no such trend actually existed), and I was perfectly disciplined, my gains and losses would cancel out, and I'd have a net loss only because of trading fees and spread. So it wasn't an inherently risky strategy. HOWEVER, I found that I saw a 1% gain nearly 70% of the time, a 1% loss about 20% of the time, and a 12:30PM forced sell (usually a small gain or loss) 10% of the time. That is actually an insanely effective strategy; way better than casino odds. And I did well with it for nearly two years, until I started noticing my win-loss was about 50-50. I wasn't losing money then, but I wasn't making money either. It became pointless. I'm pretty sure that's because market volatility fell.

My explanation for its effectiveness: in those volatile times, if the market began rising sharply in the morning, it would continue on with that trend; if it fell sharply in the morning, it would continue on with that trend too. Positive feedback and what not, at a naturally volatile time of the day. And I was using a triple leveraged ETF, so it rises and falls much more sharply than the market as a whole (even more than 3x, more like 4x).

I coincidentally had dropped out of school, so my funding stopped. The strategy was still going strong but started going sour shortly after I had dropped out, so then I stopped trading altogether. Until I got the job I have now, which pays nicely and affords me a lot of disposable income. I also have an excellent company (union, technically) pension. Pays out $5.50/hour *earned* (not worked, so the pension gets doubled for OT hours), which translated into nearly 24k last year, just short of the max contribution limit. So I contribute a lot of my own money to my TFSAs. In those, I follow a simple value investing strategy. Very similar to the "magic formula" from The Little Book That Beats the Market. I don't hold any bonds, GICs, or any other "safe" investments because I'm young and my union pension plan is my safe investment. I'm well-set for retirement with it alone, so I'm fine with taking a risk outside of it, not that value investing is a risky strategy by any means.

I wouldn't mind getting into options trading. But that's something I'm in the consideration stages of, even though I've known a lot about options for quite some time.
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freilona wrote: ... wondering why don't you open a Sunday school so you could share your interpretation of "the bible"? :)
Because I am an atheist? I feel sorry for your husband already. Good luck trolling. :lol:
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Relax, justaskthescientician. Value investing is a good way to go and the only thing I took exception with is when you said that because Canadian and US markets move symmetrically (correlated), it's Ok to completely ignore the US market assuming that your work RRSP is invested in it.
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ksgill wrote: Because I am an atheist? I feel sorry for your husband already. Good luck trolling. :lol:
I meant the indexing bible:
ksgill wrote: For the record, I m a boglehead not a couch potato investor. There is a subtle difference... Just like a wise person said, learn the contratian position before you insult it.

I am on this thread to correct your ignorant ass but I am clearly failing in educating an ignoramus :)
Maybe you'll finally get your own followers :p And my marriage might be older than you are, so can survive a few investing "mistakes" :)
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freilona wrote: I meant the indexing bible:

Maybe you'll finally get your own followers :p And my marriage might be older than you are, so can survive a few investing "mistakes" :)
I don't preach indexing, I just follow it. I also try not to argue with old ladies, so sorry if it came across like that.
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ksgill wrote: Relax, justaskthescientician. Value investing is a good way to go and the only thing I took exception with is when you said that because Canadian and US markets move symmetrically (correlated), it's Ok to completely ignore the US market assuming that your work RRSP is invested in it.
I actually just have the bad habit of starting typing and not stopping until my fingers hurt.
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justaskthescientician wrote: I actually just have the bad habit of starting typing and not stopping until my fingers hurt.
No worries, it's my personal opinion that the US economy is more important than our own when it comes to investing so sometimes I get carried away :)
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Jul 23, 2013
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It is true that Canadian and US indexes are correlated to an extent, but currency diversification is a potential benefit of having US index exposure. I'd be upset if since 2014 my TFSA went up 15% while its currency declined by the same amount.
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ChendaL wrote: The whole point of couch potato investing is not to time the market and you re balance annually. There is no fee to withdraw the money (basically you would sell the equity you hold) and if you take it out then that room of TFSA will be depleted.
You should elaborate that if you take money out of the TFSA after contributing the max to it, you lose contribution room FOR THAT YEAR ONLY. The next year you will get contribution room equal to the total amount you withdrew + new contribution room for the year.

And
justaskthescientician wrote: I'm by no means novice, have done seemingly risky strategies successfully, and now am mostly a value investor, with an appetite for risk and quite a bit of money to throw around.

I've been investing since 2009.
If you started investing in 2009 - it would be pretty difficult to NOT have made money. The Dow went up 257% from market lows in 2009 to now...but kudos to you to have entered the market when others were still running from it. Out of curiousity, did your investment strategies beat the index?
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The one investment strategy I utilized way exceeded the index. Doesn't work well anymore though, and I gave up on it a few years ago. Worked well for just a couple years, when the market was really volatile. Didn't really have much to do with the market rallying, as I was buying bull AND bear ETFs, roughly 50-50 too.
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So what rate of return did you achieve?
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Hard to compute, as I was constantly changing the amount of funds I was playing with (I was using student loans, so I need to draw down to pay bills). Not to mention totally unbelievable. I usually expected to make about 1-2% per week, and I was using full margin, so I was actually expecting about 2-4% on equity. I guess anywhere from 60-300%/year performance.
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justaskthescientician wrote: The one investment strategy I utilized way exceeded the index. Doesn't work well anymore though, and I gave up on it a few years ago. Worked well for just a couple years, when the market was really volatile. Didn't really have much to do with the market rallying, as I was buying bull AND bear ETFs, roughly 50-50 too.
justaskthescientician wrote: Hard to compute, as I was constantly changing the amount of funds I was playing with (I was using student loans, so I need to draw down to pay bills). Not to mention totally unbelievable. I usually expected to make about 1-2% per week, and I was using full margin, so I was actually expecting about 2-4% on equity. I guess anywhere from 60-300%/year performance.

No offence but if you exceeded the market averages for two years and then the strategy stopped working, the excessive returns were more likely due to luck as opposed to skill. Also, you give a range of 60-300%... what was your actual return with the superior strategy? Was it 60% or was it 300%?
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Probably somewhere around 200%. As I said, not easy to compute because I was constantly pulling money out, I got a margin account that doubled the money I was making a few months after starting, I was getting 25k/year in student line of credit and so put an additional 25k in when that money became available to me. It's hardly like I started with 25k, didn't contribute any further or take out anything, and then ended with 75k or whatever. I know what I made in capital gains because of tax receipts, but I have no idea how to calculate my starting amount.

And, yes, there was definitely a good deal of luck involved. But some skill too. I realized a pattern, studied the pattern for quite some time, until I was then confident to put 25k of my student line of credit into day trading. Even in spite of showing family and friends the results of my studies of the pattern, they still discouraged me, saying the stock market is so risky, especially day trading (and, remember, this was in 2009). They could very well have followed the same pattern, after seeing my results, but they all chose not to. My stone cold rationality was the "skill" that makes me think I deserved the money I made. Noticing the pattern was the only lucky part of it.
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justaskthescientician wrote: Probably somewhere around 200%. As I said, not easy to compute because I was constantly pulling money out, I got a margin account that doubled the money I was making a few months after starting, I was getting 25k/year in student line of credit and so put an additional 25k in when that money became available to me. It's hardly like I started with 25k, didn't contribute any further or take out anything, and then ended with 75k or whatever. I know what I made in capital gains because of tax receipts, but I have no idea how to calculate my starting amount.

And, yes, there was definitely a good deal of luck involved. But some skill too. I realized a pattern, studied the pattern for quite some time, until I was then confident to put 25k of my student line of credit into day trading. Even in spite of showing family and friends the results of my studies of the pattern, they still discouraged me, saying the stock market is so risky, especially day trading (and, remember, this was in 2009). They could very well have followed the same pattern, after seeing my results, but they all chose not to. My stone cold rationality was the "skill" that makes me think I deserved the money I made. Noticing the pattern was the only lucky part of it.
Some brokers show something like "net value change" for the year, which takes into account deposits and withdrawals or maybe this is your amount of capital gains for the year since you close out everything daily, it seems. Maybe you can share that? We know you started off with a maximum of $25k.

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