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13 Responses to "Weekend Reading – The New Tax-Free First Home Savings Account (FHSA)"

  1. Kar Yung Tom · Edit

    Stumbled on this site because I was Googling for FHSA. Good stuff and you’ll be happy to hear you rank well search-wise!

    I will say that even though Vanguard and banks are reputable, they are motivated to market the positive attributes of certain ETFs or stocks so that people sign up to their products. I wouldn’t take their articles at face value.

    Both Vanguard and the RBC piece use the “re-invested dividends is responsible for total return” example. I’ve seen this used a lot, but to me, the main takeaway is that even if you invest in something like the S&P which gives out a very small dividend, re-investing all of it will have a HUGE impact on your return in the long run. It’s not an argument for why dividend stocks are better.

    If you track any stock that’s done well and just look at the re-invested dividends portion over time, that portion is just going to grow a ridiculous amount.

    Reply
    1. Mark · Edit

      Thanks very much, glad you found me! 🙂

      Yes, there is bias in everything isn’t there: Vanguard, RBC, etc. all want more assets under management.

      Are you going to use the FHSA?

      Cheers,
      Mark

      Reply
  2. Paul N · Edit

    Shhhhhh…. Ben Felix might hear you about the whole dividend thing and write another article….

    Totally agree with you about simplifying / merging the accounts. ( But when does taxation ever get “less” complicated or less obfuscated?) However I believe this new savings account is constructed to be a program that sounds good politically announced in a press conference, but realistically in 2023 with the combination of inflation, high house pricing, and rising interest rates will be seldom utilized and have little real value in the way of a break for the target group intended.

    Reply
    1. James R · Edit

      LOL on the Ben Felix comment!

      On the topic of FHSA though, I couldn’t disagree more. Yes, the degree of impact the FHSA will have is not as substantial perhaps as many would like. But, I don’t see how anyone who has the capacity to save $8,000 a year, and knows they plan on buying a house won’t take advantage of this plan. There’s so many win-wins here. Does it make a house affordable? No. But does the tax break and the tax-free growth making it easier – Yes, absolutely. I think it will be well utilized, assuming it’s marketed correctly. My daughter (22) has her $8,000 all lined up and ready to go. She is eager to get this started, and the only challenge for her is that she will likely not wait five years to buy – but that’s a different matter.

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      1. Mark · Edit

        I believe this is firmly a supply issue, James, but I didn’t include that in my post – since the post was about the account and not about more systemic RE issues. The FHSA is an incentive to save, it does not change the RE market prices whatsoever. Just my opinion!

        Mark

        Reply
      2. Paul N · Edit

        I had a top comment on an old YT video of his where he stated all DI’s are stupid… I took offense to that, and mentioned it before here on another of Mark’s posts somewhere in the past. But i have taken flak about choosing dividend investments since i starting investing. Even the old I series TD monthly dividend mutual fund I started with had a 20 year average return of 8% after fees. That is not a horrible return for a simple one stop mutual fund. People have to be comfortable in how they invest and that does not always equate to total returns as the ultimate goal.

        As for the FHSA, I was thinking from a perspective that many young couples might have trouble to organically put away that much in 2023 and every year unless their parents lend it to them for example. I would also probably be very careful what i would select in that first time purchase situation, with a 5 year or less window in that account as well. You could be in a 10 or 20 % market downturn just when you need the DP. That is a whole other discussion I guess…

        Reply
        1. Mark · Edit

          Well said Paul. Most folks should be thrilled with averaging 8% over time, given XIU as a proxy for the CDN stock market might be 7-8% for the last 30 years.

          I know folks that are happy with 5% yield from their portfolio, and not much more with close to 0% capital appreciation since they’ve already exceeded their financial goals with a whopping $3M invested. I know others that strive and are looking for total U.S. market returns since they believe that is their best chance at the highest returns and keep zero cash.

          Who is making the right decision? The best decision? Is one investor too risky or is the other investor not risky enough?

          Yes, as for the FHSA, another good tool but young couples on their own are going to need more help than to max out the FHSA. They might get their wish with interest rates being sustained for another year since I don’t think we’ve seen any meaningful RE correction, yet. It could be coming. Some folks really bought in over their heads thinking money was going to stay cheap. It could get interesting later this year.

          Mark

          Reply
    2. Mark · Edit

      Ha.

      Ben is much smarter than I am on five factor investing, and many other concepts. I just know what works for me, has been working for me, and what will hopefully work for me going forward without paying any money management fees in the process. Besides, even if you dislike dividend investing you can more readily fire your financial advisor given the simplicity of one-ticket funds. 🙂

      Overall, no major concerns with FHSA rules which should keep many Canadian banks in business for years to come with all the regulatory work to be filed and maintained.

      Thanks for reading Paul!
      Mark

      Reply
  3. Maria @ Handful of Thoughts · Edit

    Thanks for the mention Mark. I think the FHSA is a great tool (although like you mentioned yet another complication to our tax system) and with some planning could be extremely advantageous. It will be interesting to see how it plays out in the future and what some specific case studies if its use are.

    Unfortunately I don’t think it makes that great of an impact on the housing affordability crisis.

    Reply
  4. James R · Edit

    Hey Mark,

    On the one or two simple things, I lean away from the idea of additional TFSA contribution room. What I would want to avoid is taxpayers saving a lot of TFSA savings and then use it from 65-71 while collecting GIS. Adding more contribution room would make this a more frequently used strategy I think. However, I don’t mind if, in the future, TFSA withdrawals are included in the income test for GIS. if that happens, then yeah, I’m all for increased TFSA room.

    Reply
    1. Mark · Edit

      Fair, James…but as you know, I do believe the TFSA is a gift to every adult Canadian!

      The fact that some Canadian retirees, have no other income/very low income to report, from ages 65-71 to collect GIS would be very rare but I can see the loophole for sure! The government should really just merge combine elements of OAS and GIS to be honest and be done with all these unique programs and streamline our tax system. Far better and more efficiencies.

      Reply

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