The type of investment for an FHSA depends on a person’s timeline for buying a home – and whether they plan to buy a home at all.Sundaemorning/iStockPhoto / Getty Images
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Ryan Ferguson took to social media to deliver a message in late 2023: Canadians who are eligible to open a tax-free first home savings account (FHSA) before the end of the year should do so.
Mr. Ferguson, a financial advisor and insurance broker with World Financial Group Inc. in Toronto, says those who are only opening their FHSAs this year have already missed out on $8,000 of contribution room from 2023.
FHSAs, which became available on April 1 last year, allow Canadians who don’t yet own a home to contribute up to $8,000 a year to a lifetime maximum of $40,000.
A report from Investor Economics, an ISS Market Intelligence business, found that FHSA uptake was slow, with Canadians contributing about $4.4-billion to the accounts as of December 2023. Clients of financial advisors and full-service brokerages accounted for only about 5 per cent of FHSA assets.
Mr. Ferguson calls the figures disappointing. “My opinion around the FHSA is anyone who is not a homeowner in Canada should be opening one – whether they intend to buy a home or not,” he says.
But which investments are best suited for holding in an FHSA? Here’s what advisors are taking into account.
What’s the timeline?
Most advisors agree that a client’s timeline for purchasing a home is the biggest factor when determining what to hold in an FHSA.
Gesi Commisso, partner, certified financial planner and insurance representative with Vancea Financial Group at Investia Financial Services Inc. in Woodstock, Ont., says clients who plan to purchase a home in less than two years should keep their money in low-risk investments such as a money market mutual fund.
“With that timeline, we want to keep that money extremely safe,” he says.
These clients typically have most of their down payment saved, Mr. Commisso says, and the FHSA acts as a vehicle to save the money tax-free for a couple of years and potentially make some gains.
Some clients may prefer to deposit money in the account and reap some tax-return benefits, but he warns about the effect of inflation and diminishing purchasing power.
Mr. Ferguson prefers clients with short timelines use high-interest savings accounts (HISA), in which he says clients can still get liquidity and yields above 4 per cent. However, as interest rates come down, so will returns on HISAs, money market funds and guaranteed investment certificates (GICs).
According to Investor Economics, more than half of total funds in FHSAs were in deposit accounts last year, with about one-fifth (19.4 per cent) in exchange-traded funds (ETFs), 10.5 per cent in equities, 7.8 per cent in GICs and 5.1 per cent in mutual funds (although the ETFs and mutual funds could have included cash-like funds).
More aggressive options
Clients who can put off purchasing a home for three to five years can benefit from more aggressive investments, says Guillaume Girard, a financial advisor and investment coach with Millen Wealth Advisors in Victoria.
On a five-year time horizon, Mr. Girard recommends an asset allocation of 20 per cent cash or high-interest savings, 40 per cent fixed income and 40 per cent equities.
“The biggest missed opportunity for people is a portfolio that’s not aligned with their time horizon,” he says.
Mr. Girard says some clients may be wary of a portfolio that allocates 40 per cent of assets to stocks, but he says they can generally weather the risk when their purchase date is further out.
As for fixed-income products, Mr. Girard recommends government- and investment-grade bonds.
“By adding the term and credit risk, you can improve your returns conservatively … for your down payment, assuming that you have a time horizon that allows you to weather those fluctuations,” he says.
As his clients get within one to two years of purchasing a home, he recommends moving to cash.
“We gave the portfolio time to grow, and in those last two years, we’re going to save what will eventually become their down payment,” he says.
FHSAs for non-homebuyers
Clients who don’t purchase a home can transfer their unused FHSA contributions to their registered retirement savings plan or registered retirement income fund after 15 years. That means some who aren’t likely to become homebuyers may make use of FHSAs for the tax advantages.
If the client knows they won’t purchase a home and the goal is to roll the FHSA into an RRSP in 15 years and then continue investing for another five years to retirement, Mr. Girard says, that 20-year time horizon means a globally diversified portfolio of equities based on risk tolerance may be appropriate.
He recommends investing 100 per cent of the portfolio in funds such as Dimensional Fund Advisors Global Equity Portfolio or Vanguard All-Equity ETF Portfolio VEQT-T, which have shown steady annual returns of more than 8 per cent.
“People are usually afraid of market drawdowns, and I remind them that the U.S. stock market, represented by the S&P 500 index, was never negative over a 20-year period between 1919 and 2022,” Mr. Girard says.
“That means if you had invested in an S&P 500 index fund at any point and held it for 20 years, you would have made money no matter how volatile the market was.”
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
