How I applied Buffet's strategies to my own portfolio, +70% networth, beat SP500 by 40%
I believe I did pretty well in the market this year. My networth increased ~65% since its lowest point in March, ~350k to 620k. 20k from the car I bought in March. I rolled over a 401k and it messed up Mint's reporting, hence the spike from Jul -> Aug. I beat the SP500 by 40% in my YOLO account, my FAANG account went from 180->300 I did this by following some basic investing principles, buying and holding for the most part, being patient, and only investing in areas which I have expertise in. I did not buy into the TSLA hype, nor do I play options, nor do I play crypto.
Most news is noise, not news (don't read articles about investing)
The best moves are usually boring (buy and hold)
Only listen to those you know and trust
I firmly believe that anyone who follows those concepts, they will find success in investing.
Keep emotions out of the market
Don't bother timing the market. Don't get ruled by FOMO.
Understand that for some stocks, you can't really average cost down. You will have to stomach buying the stock at a higher entry point. My refusal to average up early on caused me to miss out on a lot of gains.
Understand the difference between trading, investing, and gambling.
Have an exit strategy (stop losses would have helped me a lot in March, I now learned from my expensive mistake)
Be greedy-- not TOO greedy. If a stock pops 10%, I will sell half to lock in profits. It's super common to see a lot of companies pop and the next day dip a bit due to sell off. Perfect time to grab more on the dip. This is obviously impossible to time, which is why I only sell half.
I was very specific in the types of companies I would choose to invest in within tech. I decided to follow my strengths. As a data engineer, I'm very intimate with cloud technologies, and I think I generally have pretty sharp business acumen and good strategic direction. As a result, my day to day work had me using a ton of technologies in the cloud space. I've used Splunk, NewRelic, Twilio, AWS, GCP, Hortonworks/Cloudera, Oracle, Tableau, Datadog, Sendgrid (bought by Twilio), Dropbox/box, Slack, Salesforce, Marketo, Databricks, Snowflake, HP Vertica, just to name a few. I was familiar with CDN services like Fastly and Cloudflare because sometimes, I worked with the DevOps and IT guys. Based on industry hearsay, day to day work, eventually, I got a good "feel" of what technologies were widely adopted, easy to use, and had a good reputation in the industry. Similarly, I also got a feel for what tech were being considered 'dated' or not widely used (HP, Oracle, Cloudera, Dropbox, Box). I tend to shy away from companies that I don't understand. In the past, most times I've done that-- I got burned. My biggest losers this year was betting on $NAT and $JMNA (10k total loss). After learning from those mistakes, I decided to only focus on investing in companies that either I or my peers have intimate first hand experience with using. Because of this rationale, the majority of stocks in my portfolio are products which I believe in, I thoroughly enjoy using, and I would recommend to my friends, family, and colleagues. Post COVID, due to the shift to remote work and increase in online shopping I decided to double down on tech. I already knew that eCommerce was the next big thing. I made very early investments into SHOP and Amazon in 2017 for that reason. My hypothesis was that post-COVID, the shift on increased online activity, remote work, and eCommerce would mean that companies which build tools to support increased online activity should also increase. I decided to choose three sectors within tech to narrow down-- these were three sectors that I had a good understanding of, due to the nature of my work and personal habits.
eCommerce + AdTech
IT/DevOps (increased online activity means higher need for infra)
FinTech (increased shopping activity means more transactions)
These are the points I consider before I consider jumping into a stock:
Do I feel good about using the company? Do I believe in the company's vision?
Where do I see this company in 5 years? 10 years? Do I see my potential children being around to use these companies?
What does YoY, QoQ growth look like for this company?
Is/Will this product be a core part of how businesses or people operate?
Who are their customers and target demographic?
(SaaS) Customer testimonials, white papers, case studies. If it's for a technology, I'm going to want to read a paper or use case.
In March, I took what I believe to be an "educated gamble". When the market crashed, I liquefied most of my non tech assets and reinvested them into tech. Some of the holdings I already had, some holdings were newly purchased. EDIT^ this isn't called timing the market you /wsb imbeciles. Timing the market would be trying to figure out when to PULL OUT during ATH and then buying the dip. I SOLD at the lowest point, and I with the cash I sold AT A LOSS, I reinvested that cash and doubled down into tech. If I sold in Feb, and bought back in March, that would be calling timing the market. What I am doing is called REINVESTING/REBALANCING... not timing the market. I have 50% of my networth in AMZN, MSFT, AAPL, GOOG, FB, NFLX, and the rest in individual securities/mutual funds. I have 3 shares of TSLA that I got in @1.5. Here are the non FAANGs I chose.
$SQ. I had already been invested in SQ since 2016. I made several bad trades, holding when it first blew past 90 until I sold it at 70... bought in again last year at 60s, after noticing that more and more B&M stores were getting rid of their clunky POS systems and replacing it with Square's physical readers. After COVID, I noticed a lot of pop up vendors, restaurants doing take out. A Square reader made transactions very easy to make post-COVID.
$ATVI. Call of Duty and Candy Crush print money for them. I've been a Blizzard fanboy since I was a kid, so I have to keep this just out of principle.
$SHOP. They turned a profit this year, and I think there is still a lot more room to grow. It's become somewhat of a household name. I've met quite a few people who mentioned that they have a Shopify site set up to do their side hustle. I've tried the product myself, and can definitely attest that it's pretty easy to get an online shop up and running within a day. I 5.5xed my return here.
$BIGC. I bought into this shortly after IPO. I'm very excited to see an American Shopify. BigC focuses on enterprise customers right now, and Shopify independent merchants, so I don't see them directly competing. I'm self aware this is essentially a gamble. I got in at 90, sold at 140, and added more in 120s. I def got lucky here... it's not common for IPOs to pop so suddenly. I honestly wasn't expecting it to pop so soon.
$OKTA. Best in class SSO tool. Amazing tool that keeps tracks of all of my sign-ons at work.
$DDOG. Great monitoring tool. Widely adopted and good recommendations throughout the industry. Always had a nice looking booth at GoogleNext.
$ZM. Zoom was the only video conf tool at work which I had a good time using. Adoption had blown up pre-COVID already in the tech world, and post-COVID, they somehow became a noun. "Zoom parties" and "Zoom dates" somehow became a thing interwoven into peoples' day to day lives.
$TWLO. Twilio sells APIs which allow applications to send messages like text, voice, and video chat. For example, when DoorDash sends you a text at 1 AM reminding you that your bad decision has arrived, that text is powered by Twilio. In March, New York announced that they were going to use Twilio to send SMS notifs for COVID contact tracing.
$NET/$FSTY. These two two seem like the ones best poised for growth in the CDN space. This is based off of industry exposure and chatting with people who work in DevOps.
$DOCU. people aren't going to office to sign stuff, super easy to use, I like their product.
$WMT. eComm, streaming, and a very substantial engineering investment makes me think they have room to grow. Also I really need to diversify.
$COST. When is the last time you heard someone say "Man I hate going to Costco and paying $1.50 for a hotdog and soda?" Diversification. Also cheap hotdogs.
$NVDA/AMD. GPUs are the present and the future. Not only are they used for video games, but Machine Learning now uses GPU instead of CPU to do compute (Tensorflow for example). Crypto is still a thing as well, and there will always been a constant need for GPUs.
Mutual funds/ETFs 1. $FSCSX. MF which focuses on FinTech.
$VTSAX Pretty much moves with the SP500.
$WCLD. Holdings include Salesforce, Workday, Zuora, Atlassian, Okta, New Relic, Fastly...
Titanvest: I was an early access user, and I was able to secure 0% fees for my accout. 36% gains so far. I like them, because their portfolio happens to include shares of tech giants that I either don't have individual stocks for or my stake is low (CRM, PPYL). It nicely complements my existing portfolio.
Some things I do that that are against the grain:
Not really diversified. 80% is in tech. They are in very different sectors of tech, but the truth is, when tech falls, all of these companies fall. I'm obviously long tech and I do not believe that tech will fall anytime soon. What about the dot com bubble? There wasn't a single dot com company that was integral in our lives. The internet was in its infancy then. Techonology is now such an interwoven part of our lives and I see companies like Apple, Amazon, Google to be sticking around for several generations.
I don't read investing articles. I think people who write articles about a stock all have ulterior motives-- to pump or to dump. Case in point-- Citron Research spent years writing articles telling people how SHOP was overvalued. Why did they do that? Because they were shorters at the time. I turned 5k into 27k, because I held on to most of my SHOP shares.
I don't take much value from balance sheets, other than net loss, income, YoY growth. Instead, I use my business acumen to try to pick up on info that isn't super apparent from Google. For example, one thing I always do is that I look at the career page to see how the business is growing. Increase on marketing/sales/implementation engineers is typically a solid sign that a company is preparing headcount to take new deals in the upcoming quarters. I look at the product road map, supported integrations, and customer base.
One example was how I applied the above principle was to WalMart. In 2018 I noticed that I was getting targeted by a lot of Data engineering job listing for WalMartLabs-- WarMart's tech division. The role was to build out a big data pipeline to support their eCommerce platform. WalMart's online store released in Q3 of 2019. Post COVID, I used their online store and it was a seamless experience. They even offer a 5% cash back card like Amazon. They reported strong Q4 sales last year, and they did very well post COVID. Why did I choose to invest in $WMT? Because I believe that Wal-Mart has room to grow for their online platform. Lastly... remember that wealth isn't accrued over time. It takes years to build. The quickest way to increase your wealth is by investing in yourself-- your career and earning potential. The sooner my income increased, the quicker I had more capital to buy into stocks. Also, if you've gotten this far, the point of my post isn't to say that you should invest into tech. The message I'm trying to get across is-- when picking companies, pick companies in fields or verticals you have good knowledge in. Heed Buffet's advice to only pick companies you believe in and understand. Play to your strengths, don't mindless toss money based on one person's posts on Reddit-- always do your own due diligence. Use DD as a guide and use personal research and experience to drive your decision.
Former investment bank FX trader: Risk management part 3/3
Welcome to the third and final part of this chapter. Thank you all for the 100s of comments and upvotes - maybe this post will take us above 1,000 for this topic! Keep any feedback or questions coming in the replies below. Before you read this note, please start with Part I and then Part II so it hangs together and makes sense. Part III
Squeezes and other risks
Crap trades, timeouts and monthly limits
Squeezes and other risks
We are going to cover three common risks that traders face: events; squeezes, asymmetric bets.
Economic releases can cause large short-term volatility. The most famous is Non Farm Payrolls, which is the most widely watched measure of US employment levels and affects the price of many instruments.On an NFP announcement currencies like EURUSD might jump (or drop) 100 pips no problem. This is fine and there are trading strategies that one may employ around this but the key thing is to be aware of these releases.You can find economic calendars all over the internet - including on this site - and you need only check if there are any major releases each day or week. For example, if you are trading off some intraday chart and scalping a few pips here and there it would be highly sensible to go into a known data release flat as it is pure coin-toss and not the reason for your trading. It only takes five minutes each day to plan for the day ahead so do not get caught out by this. Many retail traders get stopped out on such events when price volatility is at its peak.
Short squeezes bring a lot of danger and perhaps some opportunity. The story of VW and Porsche is the best short squeeze ever. Throughout these articles we've used FX examples wherever possible but in this one instance the concept (which is also highly relevant in FX) is best illustrated with an historical lesson from a different asset class. A short squeeze is when a participant ends up in a short position they are forced to cover. Especially when the rest of the market knows that this participant can be bullied into stopping out at terrible levels, provided the market can briefly drive the price into their pain zone. There's a reason for the car, don't worry Hedge funds had been shorting VW stock. However the amount of VW stock available to buy in the open market was actually quite limited. The local government owned a chunk and Porsche itself had bought and locked away around 30%. Neither of these would sell to the hedge-funds so a good amount of the stock was un-buyable at any price. If you sell or short a stock you must be prepared to buy it back to go flat at some point. To cut a long story short, Porsche bought a lot of call options on VW stock. These options gave them the right to purchase VW stock from banks at slightly above market price. Eventually the banks who had sold these options realised there was no VW stock to go out and buy since the German government wouldn’t sell its allocation and Porsche wouldn’t either. If Porsche called in the options the banks were in trouble. Porsche called in the options which forced the shorts to buy stock - at whatever price they could get it. The price squeezed higher as those that were short got massively squeezed and stopped out. For one brief moment in 2008, VW was the world’s most valuable company. Shorts were burned hard. Incredible event Porsche apparently made $11.5 billion on the trade. The BBC described Porsche as “a hedge fund with a carmaker attached.” If this all seems exotic then know that the same thing happens in FX all the time. If everyone in the market is talking about a key level in EURUSD being 1.2050 then you can bet the market will try to push through 1.2050 just to take out any short stops at that level. Whether it then rallies higher or fails and trades back lower is a different matter entirely. This brings us on to the matter of crowded trades. We will look at positioning in more detail in the next section. Crowded trades are dangerous for PNL. If everyone believes EURUSD is going down and has already sold EURUSD then you run the risk of a short squeeze. For additional selling to take place you need a very good reason for people to add to their position whereas a move in the other direction could force mass buying to cover their shorts. A trading mentor when I worked at the investment bank once advised me: Always think about which move would cause the maximum people the maximum pain. That move is precisely what you should be watching out for at all times.
Also known as picking up pennies in front of a steamroller. This risk has caught out many a retail trader. Sometimes it is referred to as a "negative skew" strategy. Ideally what you are looking for is asymmetric risk trade set-ups: that is where the downside is clearly defined and smaller than the upside. What you want to avoid is the opposite. A famous example of this going wrong was the Swiss National Bank de-peg in 2012. The Swiss National Bank had said they would defend the price of EURCHF so that it did not go below 1.2. Many people believed it could never go below 1.2 due to this. Many retail traders therefore opted for a strategy that some describe as ‘picking up pennies in front of a steam-roller’. They would would buy EURCHF above the peg level and hope for a tiny rally of several pips before selling them back and keep doing this repeatedly. Often they were highly leveraged at 100:1 so that they could amplify the profit of the tiny 5-10 pip rally. Then this happened. Something that changed FX markets forever The SNB suddenly did the unthinkable. They stopped defending the price. CHF jumped and so EURCHF (the number of CHF per 1 EUR) dropped to new lows very fast. Clearly, this trade had horrific risk : reward asymmetry: you risked 30% to make 0.05%. Other strategies like naively selling options have the same result. You win a small amount of money each day and then spectacularly blow up at some point down the line.
We have talked about short squeezes. But how do you know what the market position is? And should you care? Let’s start with the first. You should definitely care. Let’s imagine the entire market is exceptionally long EURUSD and positioning reaches extreme levels. This makes EURUSD very vulnerable. To keep the price going higher EURUSD needs to attract fresh buy orders. If everyone is already long and has no room to add, what can incentivise people to keep buying? The news flow might be good. They may believe EURUSD goes higher. But they have already bought and have their maximum position on. On the flip side, if there’s an unexpected event and EURUSD gaps lower you will have the entire market trying to exit the position at the same time. Like a herd of cows running through a single doorway. Messy. We are going to look at this in more detail in a later chapter, where we discuss ‘carry’ trades. For now this TRYJPY chart might provide some idea of what a rush to the exits of a crowded position looks like. A carry trade position clear-out in action Knowing if the market is currently at extreme levels of long or short can therefore be helpful. The CFTC makes available a weekly report, which details the overall positions of speculative traders “Non Commercial Traders” in some of the major futures products. This includes futures tied to deliverable FX pairs such as EURUSD as well as products such as gold. The report is called “CFTC Commitments of Traders” ("COT"). This is a great benchmark. It is far more representative of the overall market than the proprietary ones offered by retail brokers as it covers a far larger cross-section of the institutional market. Generally market participants will not pay a lot of attention to commercial hedgers, which are also detailed in the report. This data is worth tracking but these folks are simply hedging real-world transactions rather than speculating so their activity is far less revealing and far more noisy. You can find the data online for free and download it directly here. Raw format is kinda hard to work with However, many websites will chart this for you free of charge and you may find it more convenient to look at it that way. Just google “CFTC positioning charts”. But you can easily get visualisations You can visually spot extreme positioning. It is extremely powerful. Bear in mind the reports come out Friday afternoon US time and the report is a snapshot up to the prior Tuesday. That means it is a lagged report - by the time it is released it is a few days out of date. For longer term trades where you hold positions for weeks this is of course still pretty helpful information. As well as the absolute level (is the speculative market net long or short) you can also use this to pick up on changes in positioning. For example if bad news comes out how much does the net short increase? If good news comes out, the market may remain net short but how much did they buy back? A lot of traders ask themselves “Does the market have this trade on?” The positioning data is a good method for answering this. It provides a good finger on the pulse of the wider market sentiment and activity. For example you might say: “There was lots of noise about the good employment numbers in the US. However, there wasn’t actually a lot of position change on the back of it. Maybe everyone who wants to buy already has. What would happen now if bad news came out?” In general traders will be wary of entering a crowded position because it will be hard to attract additional buyers or sellers and there could be an aggressive exit. If you want to enter a trade that is showing extreme levels of positioning you must think carefully about this dynamic.
Retail traders often drastically underestimate how correlated their bets are. Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times as large. Bruce Kovner of hedge fund, Caxton Associates For example, if you are trading a bunch of pairs against the USD you will end up with a simply huge USD exposure. A single USD-trigger can ruin all your bets. Your ideal scenario — and it isn’t always possible — would be to have a highly diversified portfolio of bets that do not move in tandem. Look at this chart. Inverted USD index (DXY) is green. AUDUSD is orange. EURUSD is blue. Chart from TradingView So the whole thing is just one big USD trade! If you are long AUDUSD, long EURUSD, and short DXY you have three anti USD bets that are all likely to work or fail together. The more diversified your portfolio of bets are, the more risk you can take on each. There’s a really good video, explaining the benefits of diversification from Ray Dalio. A systematic fund with access to an investable universe of 10,000 instruments has more opportunity to make a better risk-adjusted return than a trader who only focuses on three symbols. Diversification really is the closest thing to a free lunch in finance. But let’s be pragmatic and realistic. Human retail traders don’t have capacity to run even one hundred bets at a time. More realistic would be an average of 2-3 trades on simultaneously. So what can be done? For example:
You might diversify across time horizons by having a mix of short-term and long-term trades.
You might diversify across asset classes - trading some FX but also crypto and equities.
You might diversify your trade generation approach so you are not relying on the same indicators or drivers on each trade.
You might diversify your exposure to the market regime by having some trades that assume a trend will continue (momentum) and some that assume we will be range-bound (carry).
And so on. Basically you want to scan your portfolio of trades and make sure you are not putting all your eggs in one basket. If some trades underperform others will perform - assuming the bets are not correlated - and that way you can ensure your overall portfolio takes less risk per unit of return. The key thing is to start thinking about a portfolio of bets and what each new trade offers to your existing portfolio of risk. Will it diversify or amplify a current exposure?
Crap trades, timeouts and monthly limits
One common mistake is to get bored and restless and put on crap trades. This just means trades in which you have low conviction. It is perfectly fine not to trade. If you feel like you do not understand the market at a particular point, simply choose not to trade. Flat is a position. Do not waste your bullets on rubbish trades. Only enter a trade when you have carefully considered it from all angles and feel good about the risk. This will make it far easier to hold onto the trade if it moves against you at any point. You actually believe in it. Equally, you need to set monthly limits. A standard limit might be a 10% account balance stop per month. At that point you close all your positions immediately and stop trading till next month. Be strict with yourself and walk away Let’s assume you started the year with $100k and made 5% in January so enter Feb with $105k balance. Your stop is therefore 10% of $105k or $10.5k . If your account balance dips to $94.5k ($105k-$10.5k) then you stop yourself out and don’t resume trading till March the first. Having monthly calendar breaks is nice for another reason. Say you made a load of money in January. You don’t want to start February feeling you are up 5% or it is too tempting to avoid trading all month and protect the existing win. Each month and each year should feel like a clean slate and an independent period. Everyone has trading slumps. It is perfectly normal. It will definitely happen to you at some stage. The trick is to take a break and refocus. Conserve your capital by not trading a lot whilst you are on a losing streak. This period will be much harder for you emotionally and you’ll end up making suboptimal decisions. An enforced break will help you see the bigger picture. Put in place a process before you start trading and then it’ll be easy to follow and will feel much less emotional. Remember: the market doesn’t care if you win or lose, it is nothing personal. When your head has cooled and you feel calm you return the next month and begin the task of building back your account balance.
That's a wrap on risk management
Thanks for taking time to read this three-part chapter on risk management. I hope you enjoyed it. Do comment in the replies if you have any questions or feedback. Remember: the most important part of trading is not making money. It is not losing money. Always start with that principle. I hope these three notes have provided some food for thought on how you might approach risk management and are of practical use to you when trading. Avoiding mistakes is not a sexy tagline but it is an effective and reliable way to improve results. Next up I will be writing about an exciting topic I think many traders should look at rather differently: news trading. Please follow on here to receive notifications and the broad outline is below. News Trading Part I
Why use the economic calendar
Reading the economic calendar
Knowing what's priced in
First order thinking vs second order thinking
News Trading Part II
Preparing for quantitative and qualitative releases
Data surprise index
Using recent events to predict future reactions
Buy the rumour, sell the fact
The mysterious 'position trim' effect
Some key FX releases
*** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
You've probably been hearing a lot about Bitcoin recently and are wondering what's the big deal? Most of your questions should be answered by the resources below but if you have additional questions feel free to ask them in the comments. It all started with the release of the release of Satoshi Nakamoto's whitepaper however that will probably go over the head of most readers so we recommend the following videos for a good starting point for understanding how bitcoin works and a little about its long term potential:
Limited Supply - There will only ever be 21,000,000 bitcoins created and they are issued in a predictable fashion, you can view the inflation schedule here. Once they are all issued Bitcoin will be truly deflationary. The halving countdown can be found here.
Open source - Bitcoin code is fully auditable. You can read the source code yourself here.
Accountable - The public ledger is transparent, all transactions are seen by everyone.
Decentralized - Bitcoin is globally distributed across thousands of nodes with no single point of failure and as such can't be shut down similar to how Bittorrent works. You can even run a node on a Raspberry Pi.
Censorship resistant - No one can prevent you from interacting with the bitcoin network and no one can censor, alter or block transactions that they disagree with, see Operation Chokepoint.
Push system - There are no chargebacks in bitcoin because only the person who owns the address where the bitcoins reside has the authority to move them.
Low fee scaling - On chain transaction fees depend on network demand and how much priority you wish to assign to the transaction. Most wallets calculate on chain fees automatically but you can view current fees here and mempool activity here. On chain fees may rise occasionally due to network demand, however instant micropayments that do not require confirmations are happening via the Lightning Network, a second layer scaling solution currently rolling out on the Bitcoin mainnet.
Borderless - No country can stop it from going in/out, even in areas currently unserved by traditional banking as the ledger is globally distributed.
Portable - Bitcoins are digital so they are easier to move than cash or gold. They can even be transported by simply memorizing a string of words for wallet recovery (while cool this method is generally not recommended due to potential for insecure key generation by inexperienced users. Hardware wallets are the preferred method for new users due to ease of use and additional security).
Bitcoin.org and BuyBitcoinWorldwide.com are helpful sites for beginners. You can buy or sell any amount of bitcoin (even just a few dollars worth) and there are several easy methods to purchase bitcoin with cash, credit card or bank transfer. Some of the more popular resources are below, also check out the bitcoinity exchange resources for a larger list of options for purchases.
Here is a listing of local ATMs. If you would like your paycheck automatically converted to bitcoin use Bitwage. Note: Bitcoins are valued at whatever market price people are willing to pay for them in balancing act of supply vs demand. Unlike traditional markets, bitcoin markets operate 24 hours per day, 365 days per year. Preev is a useful site that that shows how much various denominations of bitcoin are worth in different currencies. Alternatively you can just Google "1 bitcoin in (your local currency)".
Securing your bitcoins
With bitcoin you can "Be your own bank" and personally secure your bitcoins OR you can use third party companies aka "Bitcoin banks" which will hold the bitcoins for you.
If you prefer to "Be your own bank" and have direct control over your coins without having to use a trusted third party, then you will need to create your own wallet and keep it secure. If you want easy and secure storage without having to learn computer security best practices, then a hardware wallet such as the Trezor, Ledger or ColdCard is recommended. Alternatively there are many software wallet options to choose from here depending on your use case.
If you prefer to let third party "Bitcoin banks" manage your coins, try Gemini but be aware you may not be in control of your private keys in which case you would have to ask permission to access your funds and be exposed to third party risk.
Note: For increased security, use Two Factor Authentication (2FA) everywhere it is offered, including email! 2FA requires a second confirmation code to access your account making it much harder for thieves to gain access. Google Authenticator and Authy are the two most popular 2FA services, download links are below. Make sure you create backups of your 2FA codes.
As mentioned above, Bitcoin is decentralized, which by definition means there is no official website or Twitter handle or spokesperson or CEO. However, all money attracts thieves. This combination unfortunately results in scammers running official sounding names or pretending to be an authority on YouTube or social media. Many scammers throughout the years have claimed to be the inventor of Bitcoin. Websites like bitcoin(dot)com and the btc subreddit are active scams. Almost all altcoins (shitcoins) are marketed heavily with big promises but are really just designed to separate you from your bitcoin. So be careful: any resource, including all linked in this document, may in the future turn evil. Don't trust, verify. Also as they say in our community "Not your keys, not your coins".
Where can I spend bitcoins?
Check out spendabit or bitcoin directory for millions of merchant options. Also you can spend bitcoin anywhere visa is accepted with bitcoin debit cards such as the CashApp card. Some other useful site are listed below.
Mining bitcoins can be a fun learning experience, but be aware that you will most likely operate at a loss. Newcomers are often advised to stay away from mining unless they are only interested in it as a hobby similar to folding at home. If you want to learn more about mining you can read more here. Still have mining questions? The crew at /BitcoinMining would be happy to help you out. If you want to contribute to the bitcoin network by hosting the blockchain and propagating transactions you can run a full node using this setup guide. If you would prefer to keep it simple there are several good options. You can view the global node distribution here.
Just like any other form of money, you can also earn bitcoins by being paid to do a job.
You can also earn bitcoins by participating as a market maker on JoinMarket by allowing users to perform CoinJoin transactions with your bitcoins for a small fee (requires you to already have some bitcoins.
The following is a short list of ongoing projects that might be worth taking a look at if you are interested in current development in the bitcoin space.
One Bitcoin is quite large (hundreds of £/$/€) so people often deal in smaller units. The most common subunits are listed below:
one bitcoin is equal to 100 million satoshis
1,000 per bitcoin
used as default unit in recent Electrum wallet releases
1,000,000 per bitcoin
colloquial "slang" term for microbitcoin (μBTC)
100,000,000 per bitcoin
smallest unit in bitcoin, named after the inventor
For example, assuming an arbitrary exchange rate of $10000 for one Bitcoin, a $10 meal would equal:
For more information check out the Bitcoin units wiki. Still have questions? Feel free to ask in the comments below or stick around for our weekly Mentor Monday thread. If you decide to post a question in /Bitcoin, please use the search bar to see if it has been answered before, and remember to follow the community rules outlined on the sidebar to receive a better response. The mods are busy helping manage our community so please do not message them unless you notice problems with the functionality of the subreddit. Note: This is a community created FAQ. If you notice anything missing from the FAQ or that requires clarification you can edit it here and it will be included in the next revision pending approval. Welcome to the Bitcoin community and the new decentralized economy!
You may have heard about off-shore tax havens of questionable legality where wealthy people invest their money in legal "grey zones" and don't pay any tax, as featured for example, in Netflix's drama, The Laundromat. The reality is that the Government of Canada offers 100% tax-free investing throughout your life, with unlimited withdrawals of your contributions and profits, and no limits on how much you can make tax-free. There is also nothing to report to the Canada Revenue Agency. Although Britain has a comparable program, Canada is the only country in the world that offers tax-free investing with this level of power and flexibility. Thank you fellow Redditors for the wonderful Gold Award and Today I Learned Award! (Unrelated but Important Note: I put a link at the bottom for my margin account explainer. Many people are interested in margin trading but don't understand the math behind margin accounts and cannot find an explanation. If you want to do margin, but don't know how, click on the link.) As a Gen-Xer, I wrote this post with Millennials in mind, many of whom are getting interested in investing in ETFs, individual stocks, and also my personal favourite, options. Your generation is uniquely positioned to take advantage of this extremely powerful program at a relatively young age. But whether you're in your 20's or your 90's, read on! Are TFSAs important? In 2020 Canadians have almost 1 trillion dollars saved up in their TFSAs, so if that doesn't prove that pennies add up to dollars, I don't know what does. The TFSA truly is the Great Canadian Tax Shelter. I will periodically be checking this and adding issues as they arise, to this post. I really appreciate that people are finding this useful. As this post is now fairly complete from a basic mechanics point of view, and some questions are already answered in this post, please be advised that at this stage I cannot respond to questions that are already covered here. If I do not respond to your post, check this post as I may have added the answer to the FAQs at the bottom.
How to Invest in Stocks
A lot of people get really excited - for good reason - when they discover that the TFSA allows you to invest in stocks, tax free. I get questions about which stocks to buy. I have made some comments about that throughout this post, however; I can't comprehensively answer that question. Having said that, though, if you're interested in picking your own stocks and want to learn how, I recommmend starting with the following videos: The first is by Peter Lynch, a famous American investor in the 80's who wrote some well-respected books for the general public, like "One Up on Wall Street." The advice he gives is always valid, always works, and that never changes, even with 2020's technology, companies and AI: https://www.youtube.com/watch?v=cRMpgaBv-U4&t=2256s The second is a recording of a university lecture given by investment legend Warren Buffett, who expounds on the same principles: https://www.youtube.com/watch?v=2MHIcabnjrA Please note that I have no connection to whomever posted the videos.
TFSAs were introduced in 2009 by Stephen Harper's government, to encourage Canadians to save. The effect of the TFSA is that ordinary Canadians don't pay any income or capital gains tax on their securities investments. Initial uptake was slow as the contribution rules take some getting used to, but over time the program became a smash hit with Canadians. There are about 20 million Canadians with TFSAs, so the uptake is about 70%- 80% (as you have to be the age of majority in your province/territory to open a TFSA).
Eligibility to Open a TFSA
You must be a Canadian resident with a valid Social Insurance Number to open a TFSA. You must be at the voting age in the province in which you reside in order to open a TFSA, however contribution room begins to accumulate from the year in which you turned 18. You do not have to file a tax return to open a TFSA. You do not need to be a Canadian citizen to open and contribute to a TFSA. No minimum balance is required to open a TFSA.
Where you Can Open a TFSA
There are hundreds of financial institutions in Canada that offer the TFSA. There is only one kind of TFSA; however, different institutions offer a different range of financial products. Here are some examples:
The Canadian big 5 bank branches and most other financial institutions offer a TFSA that allows you to buy mutual funds, hold cash, GICs, term deposits, and possibly ETFs. This is a good choice if you want guaranteed returns or diversified investing.
There are a number of on-line banks such as Tangerine, Simplii Financial, Oaken Financial, and many more that offer the TFSA.
The discount DIY brokerage arms of the big 5 banks give you more choices, including stocks, warrants, bonds and options. There are also standalone brokers like IBKR Canada, Questrade, Qtrade, and Virtual Brokers, among others, that offer this.
Some brokerages and financial advisors also offer TFSAs that give you these investment choices, in different formats such as:
Traditional brokerage, where a stockbroker invests your money (BMO Nesbitt Burns, RBC Dominion Securities and others)
Financial advisor who will invest your money according to a plan you put together with the advisor (TSI Network and many others)
"Robo" advisors such as Wealthsimple, RBC InvestEase, BMO SmartFolio, or Wealthbar
BMO's AdviceDirect, which is a semi-directed hybrid between standalone DIY investing and fully-advised investing, where you operate on a DIY basis but have access to a registered investment advisor (a live person) who can give you suggetions and advice.
Your TFSA may be covered by either CIFP or CDIC insuranceor both. Ask your bank or broker for details.
What You Can Trade and Invest In
You can trade the following:
GICS, mutual funds, term deposits
individual common and preferred stocks listed on an "approved exchange" which is the TSX, TSX-V, NASDAQ, NYSE, and about 20 other exchanges worldwide, but not the US OTC pink sheets. Many examples, such as Suncor, Linamar, Apple, any of the big banks, and many thousands of others, when you want to buy into an individual company
stock-like securities like REITS, ETFs and ETNs, including 2x and 3x leveraged
gold and silver certificates
cash of many countries (CAD/USD/EUGBP/AUD/NZD/JPY/CHF and many others)
government bills and bonds of most countries, subsovereigns like Canadian provincial bills and bonds, and most corporations
options that trade on the Montreal Exchange or various options exchanges in the USA and the rest of the word (see FAQ for details)
gold, silver bullion certificates
shares in certain private companies -- but consult your tax advisor on this
What You Cannot Trade
You cannot trade:
commodity futures contracts
option spread positions (see FAQ for details)
anything that requires a margin account, meaning, a special kind of account that allows you to borrow money directly from the broker against the assets you have in your account and the assets you intend to buy.
crypto (although there exist crypto ETNs that you can buy)
Again, if it requires a margin account, it's out. You cannot buy on margin in a TFSA. Nothing stopping you from borrowing money from other sources as long as you stay within your contribution limits, but you can't trade on margin in a TFSA. You can of course trade long puts and calls which give you leverage.
Rules for Contribution Room
Starting at 18 you get a certain amount of contribution room. According to the CRA: You will accumulate TFSA contribution room for each year even if you do not file an Income Tax and Benefit Return or open a TFSA. The annual TFSA dollar limit for the years 2009 to2012 was $5,000. The annual TFSA dollar limit for the years 2013 and 2014 was $5,500. The annual TFSA dollar limit for the year 2015 was $10,000. The annual TFSA dollar limit for the years 2016 to 2018 was $5,500. The annual TFSA dollar limit for the year 2019 is $6,000. The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500. Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html If you don't use the room, it accumulates indefinitely. Trades you make in a TFSA are truly tax free. But you cannot claim the dividend tax credit and you cannot claim losses in a TFSA against capital gains whether inside or outside of the TFSA. So do make money and don't lose money in a TFSA. You are stuck with the 15% withholding tax on U.S. dividend distributions unlike the RRSP, due to U.S. tax rules, but you do not pay any capital gains on sale of U.S. shares. You can withdraw *both* contributions *and* capital gains, no matter how much, at any time, without penalty. The amount of the withdrawal (contributions+gains) converts into contribution room in the *next* calendar year. So if you put the withdrawn funds back in the same calendar year you take them out, that burns up your total accumulated contribution room to the extent of the amount that you re-contribute in the same calendar year.
E.g. Say you turned 18 in 2016 in Alberta where the age of majority is 18. It is now sometime in 2020. You have never contributed to a TFSA. You now have $5,500+$5,500+$5,500+$6,000+$6,000 = $28,500 of room in 2020. In 2020 you manage to put $20,000 in to your TFSA and you buy Canadian Megacorp common shares. You now have $8,500 of room remaining in 2020. Sometime in 2021 - it doesn't matter when in 2021 - your shares go to $100K due to the success of the Canadian Megacorp. You also have $6,000 worth of room for 2021 as set by the government. You therefore have $8,500 carried over from 2020+$6,000 = $14,500 of room in 2021. In 2021 you sell the shares and pull out the $100K. This amount is tax-free and does not even have to be reported. You can do whatever you want with it. But: if you put it back in 2021 you will over-contribute by $100,000 - $14,500 = $85,500 and incur a penalty. But if you wait until 2022 you will have $14,500 unused contribution room carried forward from 2021, another $6,000 for 2022, and $100,000 carried forward from the withdrawal 2021, so in 2022 you will have $14,500+$6,000+$100,000 = $120,500 of contribution room. This means that if you choose, you can put the $100,000 back in in 2022 tax-free and still have $20,500 left over. If you do not put the money back in 2021, then in 2022 you will have $120,500+$6,000 = $126,500 of contribution room. There is no age limit on how old you can be to contribute, no limit on how much money you can make in the TFSA, and if you do not use the room it keeps carrying forward forever. Just remember the following formula: This year's contribution room = (A) unused contribution room carried forward from last year + (B) contribution room provided by the government for this year + (C) total withdrawals from last year. EXAMPLE 1: Say in 2020 you never contributed to a TFSA but you were 18 in 2009. You have $69,500 of unused room (see above) in 2020 which accumulated from 2009-2020. In 2020 you contribute $50,000, leaving $19,500 contribution room unused for 2020. You buy $50,000 worth of stock. The next day, also in 2020, the stock doubles and it's worth $100,000. Also in 2020 you sell the stock and withdraw $100,000, tax-free. You continue to trade stocks within your TFSA, and hopefully grow your TFSA in 2020, but you make no further contributions or withdrawals in 2020. The question is, How much room will you have in 2021? Answer: In the year 2021, the following applies: (A) Unused contribution room carried forward from last year, 2020: $19,500 (B) Contribution room provided by government for this year, 2021: $6,000 (C) Total withdrawals from last year, 2020: $100,000 Total contribution room for 2021 = $19,500+6,000+100,000 = $125,500. EXAMPLE 2: Say between 2020 and 2021 you decided to buy a tax-free car (well you're still stuck with the GST/PST/HST/QST but you get the picture) so you went to the dealer and spent $25,000 of the $100,000 you withdrew in 2020. You now have a car and $75,000 still burning a hole in your pocket. Say in early 2021 you re-contribute the $75,000 you still have left over, to your TFSA. However, in mid-2021 you suddenly need $75,000 because of an emergency so you pull the $75,000 back out. But then a few weeks later, it turns out that for whatever reason you don't need it after all so you decide to put the $75,000 back into the TFSA, also in 2021. You continue to trade inside your TFSA but make no further withdrawals or contributions. How much room will you have in 2022? Answer: In the year 2022, the following applies: (A) Unused contribution room carried forward from last year, 2021: $125,500 - $75,000 - $75,000 = -$24,500. Already you have a problem. You have over-contributed in 2021. You will be assessed a penalty on the over-contribution! (penalty = 1% a month). But if you waited until 2022 to re-contribute the $75,000 you pulled out for the emergency..... In the year 2022, the following would apply: (A) Unused contribution room carried forward from last year, 2021: $125,500 -$75,000 =$50,500. (B) Contribution room provided by government for this year, 2022: $6,000 (C) Total withdrawals from last year, 2020: $75,000 Total contribution room for 2022 = $50,500 + $6,000 + $75,000 = $131,500. ...And...re-contributing that $75,000 that was left over from your 2021 emergency that didn't materialize, you still have $131,500-$75,000 = $56,500 of contribution room left in 2022. For a more comprehensive discussion, please see the CRA info link below.
FAQs That Have Arisen in the Discussion and Other Potential Questions:
Equity and ETF/ETN Options in a TFSA: can I get leverage? Yes. You can buy puts and calls in your TFSA and you only need to have the cash to pay the premium and broker commissions. Example: if XYZ is trading at $70, and you want to buy the $90 call with 6 months to expiration, and the call is trading at $2.50, you only need to have $250 in your account, per option contract, and if you are dealing with BMO IL for example you need $9.95 + $1.25/contract which is what they charge in commission. Of course, any profits on closing your position are tax-free. You only need the full value of the strike in your account if you want to exercise your option instead of selling it. Please note: this is not meant to be an options tutorial; see the Montreal Exchange's Equity Options Reference Manual if you have questions on how options work.
Equity and ETF/ETN Options in a TFSA: what is ok and not ok? Long puts and calls are allowed. Covered calls are allowed, but cash-secured puts are not allowed. All other option trades are also not allowed. Basically the rule is, if the trade is not a covered call and it either requires being short an option or short the stock, you can't do it in a TFSA.
Live in a province where the voting age is 19 so I can't open a TFSA until I'm 19, when does my contribution room begin? Your contribution room begins to accumulate at 18, so if you live in province where the age of majority is 19, you'll get the room carried forward from the year you turned 18.
If I turn 18 on December 31, do I get the contribution room just for that day or for the whole year? The whole year.
Do commissions paid on share transactions count as withdrawals? Unfortunately, no. If you contribute $2,000 cash and you buy $1,975 worth of stock and pay $25 in commission, the $25 does not count as a withdrawal. It is the same as if you lost money in the TFSA.
How much room do I have? If your broker records are complete, you can do a spreadsheet. The other thing you can do is call the CRA and they will tell you.
TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
More than 1 TFSA: you can have as many as you want but your total contribution room does not increase or decrease depending on how many accounts you have.
Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
Do I have to declare my profits, withdrawals and contributions? No. Your bank or broker interfaces directly with the CRA on this. There are no declarations to make.
Risky investments - smart? In a TFSA you want always to make money, because you pay no tax, and you want never to lose money, because you cannot claim the loss against your income from your job. If in year X you have $5,000 of contribution room and put it into a TFSA and buy Canadian Speculative Corp. and due to the failure of the Canadian Speculative Corp. it goes to zero, two things happen. One, you burn up that contribution room and you have to wait until next year for the government to give you more room. Two, you can't claim the $5,000 loss against your employment income or investment income or capital gains like you could in a non-registered account. So remember Buffett's rule #1: Do not lose money. Rule #2 being don't forget the first rule. TFSA's are absolutely tailor-made for Graham-Buffett value investing or for diversified ETF or mutual fund investing, but you don't want to buy a lot of small specs because you don't get the tax loss.
Moving to/from Canada/residency. You must be a resident of Canada and 18 years old with a valid SIN to open a TFSA. Consult your tax advisor on whether your circumstances make you a resident for tax purposes. Since 2009, your TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. Note: If you move to another country, you can STILL trade your TFSA online from your other country and keep making money within the account tax-free. You can withdraw money and Canada will not tax you. But you have to get tax advice in your country as to what they do. There restrictions on contributions for non-residents. See "non residents of Canada:" https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
The U.S. withholding tax. Dividends paid by U.S.-domiciled companies are subject to a 15% U.S. withholding tax. Your broker does this automatically at the time of the dividend payment. So if your stock pays a $100 USD dividend, you only get $85 USD in your broker account and in your statement the broker will have a note saying 15% U.S. withholding tax. I do not know under what circumstances if any it is possible to get the withheld amount. Normally it is not, but consult a tax professional.
The U.S. withholding tax does not apply to capital gains. So if you buy $5,000 USD worth of Apple and sell it for $7,000 USD, you get the full $2,000 USD gain automatically.
Tax-Free Leverage. Leverage in the TFSA is effectively equal to your tax rate * the capital gains inclusion rate because you're not paying tax. So if you're paying 25% on average in income tax, and the capital gains contribution rate is 50%, the TFSA is like having 12.5%, no margin call leverage costing you 0% and that also doesn't magnify your losses.
Margin accounts. These accounts allow you to borrow money from your broker to buy stocks. TFSAs are not margin accounts. Nothing stopping you from borrowing from other sources (such as borrowing cash against your stocks in an actual margin account, or borrowing cash against your house in a HELOC or borrowing cash against your promise to pay it back as in a personal LOC) to fund a TFSA if that is your decision, bearing in mind the risks, but a TFSA is not a margin account. Consider options if you want leverage that you can use in a TFSA, without borrowing money.
Dividend Tax Credit on Canadian Companies. Remember, dividends paid into the TFSA are not eligible to be claimed for the credit, on the rationale that you already got a tax break.
FX risk. The CRA allows you to contribute and withdraw foreign currency from the TFSA but the contribution/withdrawal accounting is done in CAD. So if you contribute $10,000 USD into your TFSA and withdraw $15,000 USD, and the CAD is trading at 70 cents USD when you contribute and $80 cents USD when you withdraw, the CRA will treat it as if you contributed $14,285.71 CAD and withdrew $18,75.00 CAD.
OTC (over-the-counter stocks). You can only buy stocks if they are listed on an approved exchange ("approved exchange" = TSX, TSX-V, NYSE, NASDAQ and about 25 or so others). The U.S. pink sheets "over-the-counter" market is an example of a place where you can buy stocks, that is not an approved exchange, therefore you can't buy these penny stocks. I have however read that the CRA make an exception for a stock traded over the counter if it has a dual listing on an approved exchange. You should check that with a tax lawyer or accountant though.
The RRSP. This is another great tax shelter. Tax shelters in Canada are either deferrals or in a few cases - such as the TFSA - outright tax breaks, The RRSP is an example of a deferral. The RRSP allows you to deduct your contributions from your income, which the TFSA does not allow. This deduction is a huge advantage if you earn a lot of money. The RRSP has tax consequences for withdrawing money whereas the TFSA does not. Withdrawals from the RRSP are taxable whereas they are obviously not in a TFSA. You probably want to start out with a TFSA and maintain and grow that all your life. It is a good idea to start contributing to an RRSP when you start working because you get the tax deduction, and then you can use the amount of the deduction to contribute to your TFSA. There are certain rules that claw back your annual contribution room into an RRSP if you contribute to a pension. See your tax advisor.
Pensions. If I contribute to a pension does that claw back my TFSA contribution room or otherwise affect my TFSA in any way? Answer: No.
The $10K contribution limit for 2015. This was PM Harper's pledge. In 2015 the Conservative government changed the rules to make the annual government allowance $10,000 per year forever. Note: withdrawals still converted into contribution room in the following year - that did not change. When the Liberals came into power they switched the program back for 2016 to the original Harper rules and have kept the original Harper rules since then. That is why there is the $10,000 anomaly of 2015. The original Harper rules (which, again, are in effect now) called for $500 increments to the annual government allowance as and when required to keep up with inflation, based on the BofC's Consumer Price Index (CPI). Under the new Harper rules, it would have been $10,000 flat forever. Which you prefer depends on your politics but the TFSA program is massively popular with Canadians. Assuming 1.6% annual CPI inflation then the annual contribution room will hit $10,000 in 2052 under the present rules. Note: the Bank of Canada does an excellent and informative job of explaining inflation and the CPI at their website.
Losses in a TFSA - you cannot claim a loss in a TFSA against income. So in a TFSA you always want to make money and never want to lose money. A few ppl here have asked if you are losing money on your position in a TFSA can you transfer it in-kind to a cash account and claim the loss. I would expect no as I cannot see how in view of the fact that TFSA losses can't be claimed, that the adjusted cost base would somehow be the cost paid in the TFSA. But I'm not a tax lawyeaccountant. You should consult a tax professional.
Transfers in-kind to the TFSA and the the superficial loss rule. You can transfer securities (shares etc.) "in-kind," meaning, directly, from an unregistered account to the TFSA. If you do that, the CRA considers that you "disposed" of, meaning, equivalent to having sold, the shares in the unregistered account and then re-purchased them at the same price in the TFSA. The CRA considers that you did this even though the broker transfers the shares directly in the the TFSA. The superficial loss rule, which means that you cannot claim a loss for a security re-purchased within 30 days of sale, applies. So if you buy something for $20 in your unregistered account, and it's trading for $25 when you transfer it in-kind into the TFSA, then you have a deemed disposition with a capital gain of $5. But it doesn't work the other way around due to the superficial loss rule. If you buy it for $20 in the unregistered account, and it's trading at $15 when you transfer it in-kind into the TFSA, the superficial loss rule prevents you from claiming the loss because it is treated as having been sold in the unregistered account and immediately bought back in the TFSA.
Day trading/swing trading. It is possible for the CRA to try to tax your TFSA on the basis of "advantage." The one reported decision I'm aware of (emphasis on I'm aware of) is from B.C. where a woman was doing "swap transactions" in her TFSA which were not explicitly disallowed but the court rules that they were an "advantage" in certain years and liable to taxation. Swaps were subsequently banned. I'm not sure what a swap is exactly but it's not that someone who is simply making contributions according to the above rules would run afoul of. The CRA from what I understand doesn't care how much money you make in the TFSA, they care how you made it. So if you're logged on to your broker 40 hours a week and trading all day every day they might take the position that you found a way to work a job 40 hours a week and not pay any tax on the money you make, which they would argue is an "advantage," although there are arguments against that. This is not legal advice, just information.
The U.S. Roth IRA. This is a U.S. retirement savings tax shelter that is superficially similar to the TFSA but it has a number of limitations, including lack of cumulative contribution room, no ability for withdrawals to convert into contribution room in the following year, complex rules on who is eligible to contribute, limits on how much you can invest based on your income, income cutoffs on whether you can even use the Roth IRA at all, age limits that govern when and to what extent you can use it, and strict restrictions on reasons to withdraw funds prior to retirement (withdrawals prior to retirement can only be used to pay for private medical insurance, unpaid medical bills, adoption/childbirth expenses, certain educational expenses). The TFSA is totally unlike the Roth IRA in that it has none of these restrictions, therefore, the Roth IRA is not in any reasonable sense a valid comparison. The TFSA was modeled after the U.K. Investment Savings Account, which is the only comparable program to the TFSA.
The UK Investment Savings Account. This is what the TFSA was based off of. Main difference is that the UK uses a 20,000 pound annual contribution allowance, use-it-or-lose-it. There are several different flavours of ISA, and some do have a limited recontribution feature but not to the extent of the TFSA.
Is it smart to overcontribute to buy a really hot stock and just pay the 1% a month overcontribution penalty? If the CRA believes you made the overcontribution deliberately the penalty is 100% of the gains on the overcontribution, meaning, you can keep the overcontribution, or the loss, but the CRA takes the profit.
Speculative stocks-- are they ok? There is no such thing as a "speculative stock." That term is not used by the CRA. Either the stock trades on an approved exchange or it doesn't. So if a really blue chip stock, the most stable company in the world, trades on an exchange that is not approved, you can't buy it in a TFSA. If a really speculative gold mining stock in Busang, Indonesia that has gone through the roof due to reports of enormous amounts of gold, but their geologist somehow just mysteriously fell out of a helicopter into the jungle and maybe there's no gold there at all, but it trades on an approved exchange, it is fine to buy it in a TFSA. Of course the risk of whether it turns out to be a good investment or not, is on you.
Remember, you're working for your money anyway, so if you can get free money from the government -- you should take it! Follow the rules because Canadians have ended up with a tax bill for not understanding the TFSA rules. Appreciate the feedback everyone. Glad this basic post has been useful for many. The CRA does a good job of explaining TFSAs in detail at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
Unrelated but of Interest: The Margin Account
Note: if you are interested in how margin accounts work, I refer you to my post on margin accounts, where I use a straightforward explanation of the math behind margin accounts to try and give readers the confidence that they understand this powerful leveraging tool.
TRADE OF THE DAY: Microsoft ($MSFT) Post-Earnings Looking For Next Movement Using Vertical Spreads Using 28AUG Series [07/23/20]
Ahoy! The NASDAQ high-fliers are extremely overbought and getting sloppy, but markets frequently rise much further than logic would dictate. Microsoft (MSFT) has just reported earnings and is still consolidating within a 15 point range, building up energy for the next movement. A break above $214/share would be a long signal, with the stop being below $201/share. This gap of $13 between the entry price and the stop represents your "risk," which needs to be sized to no more than 1-2% of your account value. For example, if you traded a ten share position, then your aggregate risk would be $130. This represents a 2% risk position for an $6500 account. Alternatively, a more efficient way to trade this breakout in a limited-risk fashion is with MSFT vertical spreads using the 28AUG series, where you can limit the risk/contract to no more than $125/contract. Be aware of the 8/19 ex-dividend if playing call spreads. If you are wary of the large drop off following yesterday's earnings report, it's likely due to Azure expected growth under-performing (+47% vs +55% Est), but there's also a good chance that when cash markets open MSFT goes up anyway. Even Microsoft subscriptions growth has dropped in half. LinkedIn also, which resulted in layoffs recently. That said, they are in the right sector at the right time, so these fundamentals are less noteworthy than you might expect. If you haven't done so already, be sure subscribe to the Trade Of The Day subreddit to talk more about stocks / options / crypto / spacs / everything else trading! Cheers and beers, ReadySetTrade
I'm kinda ok with MCO -> CRO Swap; a indepth personal view
EDIT: this post https://www.reddit.com/Crypto_com/comments/i2yhuz/open_letter_to_kris_from_one_of_cdcs_biggest/ from u/CryptoMines expresses my sentiments and concerns better than I could ever put into words myself. I'd say read his/her post instead. Very long post ahead, but TL;DR, I actually see this swap as a positive change, despite fearing for what it may do to my portofolio, and having mixed feelings about its consequences on CDC reputation.Before I start, for the sake of context and bias, here's my personal situation as a CDC user:
I'm just a average Joe, with a 500 MCO Jade card. I bough 50 MCO at 5,22€ in September 2019 and staked for Ruby, then bough 440 MCO at 2.47€ in March 2020 and upgraded to Jade. The total amount of MCO I own is currently 515, and everything above the 500 stake is cashback rewards.
I bought MCO exclusively for the card and bonus Earn interest benefits, and had no plans to unstake my MCO. Now with the swap, definetly won't unstake.
The MCO -> CRO conversion rates increased the fiat value of my MCO in about 1000€.
I own a decent amount of CRO, wich I bought at ~0,031€ in March 2020.
The country where I live is crypto friendly and completely crypto-tax free; I only have to pay income tax if I deposit a certain threshold of fiat in my bank.
Take all these factors into account as possible (if not major) influencers or bias on my opinions; both the emotional and economical ones. Call me a fool or a devil's advocate if you want, but keep your torches and pitchforks down. As we say here on Reddit: "Remember the human".----------------------------------------------------------------------------------------------------------------------------------------------------- Like all of you, I woke up to find this anouncement, wich came right the #[email protected] out of nowere, and gives you little to no options. Good or bad, this announcement arrived as basicly a "comply or die" choice. Emotionally, this came as both terrifying and disgusting; but rationally, I cannot blame CDC for it. Because wether we like it or not, CDC is a centralized company, and the MCO tokens were never a stock or legally binding contract; something wich pretty much every crypto company or ICO warns in their T&C and risk warnings. Not to mention the mostly unregulated status of the cryptocurrency and. I'll call this "dishonest" any day, but I cannot see it as a "scammy" since I can't see how they broke any rules or terms. A scammer would take your money/assets away, but CDC is offering you to swap it for another asset wich you can sell right away if you want. And at current price, it is still worth more or less as much fiat as MCO cost at the 5 $/€ wich was more or less the comunity standard used for calculating the card prices. And by that, I mean that the fiat value of 50/500/5000 MCO (as CRO) is actually not far from the 250/2500/25'000 $/€ that the comunity commonly used as standard when calculating the ROI and (under)valuation of MCO. So CDC is at least trying to give us the option to get (some) our money back, and not at a unfair rate. If you happened to buy MCO at a price higher than this, I can't see how that's CDC's fault, just as I don't see anyone blaming Bitcoin or Altcoins for getting them stuck at the top of the 2017 bubble burst. I read many posts in this reddit calling this a "backstab" and "betrayal" of early investors and for the people who "believed in MCO". Emotionally, I share your sentiment.But after thinking it for a while, I'd say this was actually very rewarding for early investors and long term MCO supporters. As CDC clearly sates in the swap rules; nobody is going to lose their card tier or MCO stake benefits (at least not yet), and your stake DOES NOT unstake automatically after 180 days. Actually, so far they never did unstake automatically, you had to manually unstake yourself. With this in mind, everyone who already got their cards, or at least staked MCO to reserve one, basicly got them 3-5 times cheaper than future users; and IMHO, now the $/€ price of cards feels more fair and sustainable compared to their benefits.So in a sense, everyone who supported and believed on the MCO for its utility (i.e. the card and app benefits) has been greatly rewarded with perks that they get to keep, but are now out of reach for a lot of people.Likewise, the people who believed and invested in CRO (for whatever reason), have also been rewarded, as their CRO tokens now have more utility. So either the price of CRO crashes down to around 0.05 $/€, or the people who bought MCO/CRO early or cheap are now massively benefited. But then again, so is everyone who bought or mined Bitcoin in its early days, or invested in Bitcoin at crucial points of its history... how is that unfair? Some people bought Ethereum at 1'400 $ on a mix of hopes/promises that it would continue to rise; it didn't. And even today with DeFi and ETH 2.0 ever closer, it is still far from that price. And I know what some of you are thinking: "The cards aren't avaiable in my country yet, that's why I didn't buy/stake."Well, they weren't avaiable in my country either when I staked 50 MCO. Heck, the cards weren't avaiable in anyones country when MCO started, but many people still bought it and staked it. That's exacly what "early adopter", "long supporter" and "believing in MCO" means. On the other hand, the people who invested on MCO as a speculative asset and decided to HODL and hoard MCO, hoping for its price to moon and then sell MCO at big profit, had their dreams mercilessly crushed by this swap... and good lord, I feel their pain.But this is also where I'll commit the sin of being judgemental, because IMHO, speculating on MCO never made any sense to me; MCO was a utility token, not a value token, so it should not (and could not) ever be worth more than the value of its utility. That's basicly how stablecoins and PAXG are able to stay stable; because nobody will pay more/less than the value of the asset/service they represent. Tough now that I'm looking at the new card stake tiers in CRO, I have to give credit to the MCO hodlers I just now criticised; maybe you were right all along. Unless the price of CRO crashes or corrects, I wich case, I un-rest my case. One thing I'll agree with everyone tough, is that I fell that CDC just suckerpunched it's comunity. Because even if we have no vote on its decisions (wich again, we aren't necessarily entitled to, since they are a privante and centralized business) they should/could have warned that this was in their plans well in advance; if anything to allow those who wouldn't like it to exit this train calmly. Also the CRO stake duration reset. The mandatory reset of your CRO stake for taking advantage of the early swap bonus feels like another gut-punch. ----------------------------------------------------------------------------------------------------------------------------------------------------- Now that we got emotional feelings out of the way, here's my sentiment about how this will affect the overall CDC ecossystem. One common criticism of the sustainability of MCO was that its supply cap could never allow a large number of cards to be issued, and how could CDC keep paying the cashbacks and rebates. On the oposite corner, one of the major criticisms of the sustainability of CRO, was it's ridiculously huge supply cap and inflation caused by the gradual un-freezing and release of more CRO into the system. But now that MCO and CRO became one, it might just have made both issues more sustainable. Now the huge supply cap of CRO makes more sense, as it allows a much larger number of future users to stake for cards (at higher costs, but still). And because most card cashback is small parcels, this large supply also ensures that CDC can keep paying said cashbacks for a long time; especially since it can be semi-renewable trough the trading fees we pay in CRO. Before this, the MCO you got as cashback had no use, other than selling it for fiat or speculate on its price. But CRO can be used, at the very least, to receive a discount on trading fees. And everytime you pay trading fees in CRO or spend CRO on a Syndicate event, some of that CRO goes back to CDC, wich they can use to keep paying the cahsback/rebates. And keep in mind, the technicalities of CRO can be changed, as well as the perks and utilities it can be used for. So even if this current model doesn't fix everything (wich it probably doesn't) it can still be changed to patch problems or expand its use. Another obvious potentially positive outcome of this, is that now CDC only has to focus on 1 token, so it makes it easier to manage and drive its value. People complained that CDC was neglecting MCO over promoting CRO, but now they can focus on both services (cards/exchange) at the same time. Sure, this might not bring much advantage to the common customer, but its probably a major resource saver and optimizer at corporate levels; wich in the long term ultimately benefits its customers. Much like Ethereum is undergoing major changes to ensure its scalability, the crypto companies themselves also have to change to acommodate the growing number of users, especially as the cryptomarket and DeFi are growing and becoming more competitive. Business strategies that were once successfull became obsolete, and exchanges that once held near-monopolies had to adjust to rising competitors. There is no reason why CDC shouldn't keep up with this, or at least try to. Point is, the financial markets, crypto or otherwise, are not a status quo haven. And when something is wrong, something has to be changed, even if it costs. The very rise of cryptocurrencies and blockchain, wich is why we are here in the first place, is a perfect example of this, as it experiments and provides alternatives to legacy/traditional products and technologies. Was this the best solution to its current problems? Is this what will protect us as customers from a potentially unsustainable business model? I have no idea. This change ripped me too from my previous more or less relaxed status quo (the safety of the value of the CRO I bough for cheap), along with CRO late investors wich now probably fear for the devaluation of their CRO. To say nothing of the blow this represents for my trust (and I believe everyone elses trust) on CDC and its public relations. It's not what CDC did, it's how they did it. ------------------------------------------------------------------------------------------------------------------------------------------------ Wether you actually bothered to read all I wrote or just skip everything (can't blame you), I'm eager to hear your opinions and whatever criticisms on my opinions you may have. If you just want to vent at me, you are welcome too; now you can raise your pitchforks and torches.
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