April 6, 2013
As regards the stock market, there are "value" stocks and "growth" stocks. It seems like you are saying that "growth" stocks are speculative, and thus vulnerable to prosecution if conducted through TFSA. I can't understand this. As I understand it, the well-being of the economy requires that some people invest in "growth" stocks which do not bear dividends. How are these companies supposed to make a go of it if people don't invest in them? That, as I understand it, is how our economy of risk and reward is supposed to work. (Personally, I find this hard to accept. I am risk-averse, and I haven't invested in any of them, but it is my understanding of how it is supposed to work. To me, the whole thing is speculative, be it "value", "dividend-producing" or "growth", as, really, I have no idea how they'll all work out in the end, despite the odds. To my way of thinking, they are all speculative, some moreso than others perhaps.) Further, as far as I know, and I've only spoken to a couple, stock brokers would never be willing to tell you that some of your stocks will be duds. They sell them all with the idea that they will succeed, sooner or later.
It's not really what kind of stocks one puts money into that determines whether one is "investing" or "speculating". It's more of one's intentions.
It is possible to "invest" in speculative stocks. One can buy several of them that seem to have a bright long-term future, intending to hold onto them to participate in their long-term success.
It is possible to "speculate" in blue-chip, dividend-paying stocks. One can intend to speculate in Bank of Montreal stock by trading in and out of it monthly as it moves up and down 2% or 3%.
I understand that there are conventional truths out there that disagree with my perspective. I'm just saying that it's really hard for someone like me to figure out what these people really mean, because my mind doesn't work the same way.
Yes, it is difficult until one understands the difference between "investing" and "speculating". Lots of people who think they are investing are actually speculating! Ever heard it said that many people's long-term investments are their short-term speculations gone wrong?
The only option, for someone like me, is to avoid stocks in TFSAs like the plague - which shouldn't be that hard. But I am annoyed that they are making it so difficult to understand and follow.
I don't agree that they couldn't make it clearer. They should just eliminate stocks as a category of TFSA investment, admitting that they are all speculative to some degree or other because, even if it's just 1 in 5 (and it could be more, or even all if you are unlucky), any of them could go belly-up. That, after all, is the reason I don't invest in them. I am not persuaded that it's OK if most of them succeed because they might not. No broker will guarantee anything whatsoever. CRA seems to only want TFSAs to invest in "value" stocks. They seem to want to penalize the "growth" side, or at least leave people confused about whether these will qualify.
Everything is possible. But, not everything is likely.
The federal government's intentions for TFSA's is for people to use them to "invest" and not to "speculate". I think it will be clear once one understands what "investing" is and what "speculating" is.
There is skill required to bring the disappointments down to 1-in-4 or 1-in-5. Not everyone can do it. Disappointments can be around 1-in-2 for those who don't know what they're doing.
I don't see any resolution to this. I will continue to avoid stocks in TFSAs. I may in the future invest in stocks outside of TFSA. I haven't decided if it's worth it yet. But I will not put money into anything that I personally don't consider an "investment". This doesn't mean, however, that the decision might not change tomorrow. I might decide in favour of something today but change my mind tomorrow if I learn something new or circumstances change for me or the company or the outside world or if I have made enough money that I feel I no longer need to take the risks associated with that investment; and I don't want to run any risks for that or have my decision-making interfered with by vague rules whose outcomes cannot be known. To me, stocks are all speculative, unknowable, and to be wary of. I am still assessing whether the risk would ever be necessary or desirable for me. So far I have not been convinced, but I might be eventually, and I would never want to give up my ability to get out of that investment when I chose to do so and for whatever reason made sense to me at the time; and I certainly don't ever want to have to argue the case with professional mind-readers at CRA.
I think the most important thing is to find out if one can develop the skills to make money "investing" in or "speculating" in stocks. Not everyone can do it. It's not just intelligence. Some people can't sleep nights with the volatility and uncertainty.
Until one is convinced that one can make money in stocks (and sleep too), I think it is better to leave them out of one's TFSA. After all, capital losses and business losses don't need to be shielded from taxes by a TFSA.
Thanks for trying to explain it, but I think we are just poles apart in our perspective on this one.
I think the difference is because we're are decades apart in our experience with putting money into stocks.
October 21, 2013
Thanks for your comments, Norman.
I'm sure that your decades of experience are really helpful to you in all this, but I also think it shouldn't require that in order to deal with what ought to be more straightforward. TFSAs are being marketed to anyone 18 and up, with all levels of knowledge, wits and experience.
It all comes down to "intentions". There are some situations where this will be clear, but many where it will be murky. It will provide a lot of fodder for lawyers. And if CRA loses any of their legal cases, guess who will be paying for the lawyers?
I won't be putting any stocks in my TFSA anyway, which will come as no surprise to anyone! Too many things to worry about.