These silent wealth killers could be quietly draining your TFSA’s potential without you even realizing it.
Imagine your TFSA is like a wooden house—everything looks fine, but termites are silently eating away at its foundation, causing permanent damage over time.
Similarly, these hidden mistakes can kill your TFSA wealth over the long term. With my financial planning experience, I’ll show you eight ways to stop the damage so you can keep your TFSA safe.
1. Ridiculously High Fees
High fees are one of the sneakiest ways to kill your TFSA’s potential. I used to work as a financial advisor at a major bank in Canada, so I know all the little tricks they use to make it hard to see how much fees you’re paying each year.
Canada is notorious for having some of the highest mutual fund fees in the world. the average MER for Canadian equity funds is 1.76%, according to Morningstar’s 2022 report,
Banks like TD and RBC routinely offer funds with MERs exceeding 2%. Worse yet, 93.4% of Canadian equity funds underperformed their benchmarks over 10 years, likely due to high fees, according to the SPIVA Canada report
But here’s what I think is the most sinister part: many of these funds engage in “closet indexing.” They charge high fees for so-called “active” management but essentially mimic the index they’re supposed to try to outperform but take a huge fee in return. I’ll show you an example.
RBC US Equity Fund vs. ETFs
I compared two funds using the S&P 500 as a benchmark: RBC US Equity Fund and Vanguard’s VFV. The RBC fund, with a 1.88% MER, claims to be actively managed but has underperformed VFV, a low-cost passive ETF with a 0.09% MER that tracks the index. Look at how closely the RBC fund performance mirrors the index fund, a classic sign of closet indexing. Over five years:
- Vanguard VFV (MER 0.09%): 116% return → $100,000 grows to $216,000.
- RBC US Equity Fund (MER 1.88%): 88% return → $100,000 grows to $188,000.
That’s a difference of $38,000 in just five years. Over 20 or 30 years, compounded losses due to fees could mean hundreds of thousands of dollars in lost tax-free growth—money that could have stayed in your TFSA.
The True Cost of High Fees
Think about it: at 1.88% MER, this $4 billion RBC Fund collects nearly $80 million annually in fees from Canadian investors. And it’s not the only fund doing this—there are thousands of high-fee funds in Canada siphoning billions of dollars from Canadians’ TFSAs every year.
I go into this in way more detail in another video of mine, about why you should avoid mutual funds in Canada, so check that out!
2. Not Having a Clear TFSA Strategy
One of the most common silent wealth killers I see with our clients is using their TFSA without a clear strategy—or worse, treating it like a piggy bank. Frequent withdrawals and redeposits not only disrupt the power of compounding but can also lead to over-contribution penalties.
The TFSA is best used as a powerful tool for tax-free growth, but when it’s treated as a revolving door for cash, it can’t do its job. Without a long-term vision, thousands of dollars in potential growth are left on the table.
Another common issue of not having a strategy is a lack of coordination with other accounts. For instance, many people use their TFSA to save for their first home, unaware that better tools like the FHSA or the enhanced Home Buyers’ Plan exist.
Then there’s the lack of coordination in retirement with TFSA and RRSP withdrawals. Most people have no idea what they will do with their TFSA in retirement. This lack of planning often results in missed opportunities for tax savings and investment growth.
The people who succeed are those who set intentional goals with their TFSA. For example, my personal goal is to use my TFSA to fund an early retirement. This focus keeps me disciplined and helps shape my strategy. I encourage you to ask yourself these two questions: What is my TFSA for? How does it fit into my overall financial plan?
Great goals for a TFSA might include growing wealth to leave a legacy, supplementing retirement income, or saving for life milestones. Treat your TFSA like a fortress for your future, and you’ll avoid this silent killer and unlock its full potential.
3. Emotional Investing
Emotions are one of the biggest “wealth killers” when it comes to successful investing in your TFSA. Fear during market downturns and greed when chasing the next big trend can cloud judgment and lead to costly mistakes. Cognitive biases like loss aversion and the fear or missing out, (FOMO) often drive people to sell in a panic when markets dip or to buy overpriced stocks chasing hype.
Your TFSA is designed to be a long-term wealth-building tool, but emotional investing can derail its purpose. Reacting to short-term market swings by selling low and buying high is a common pitfall. For example, during the COVID-19 market crash in early 2020, many Canadians sold at the bottom out of fear, missing the quick rebound that followed. On the flip side, during the late 1990s tech boom, investors poured money into overpriced stocks, only to suffer steep losses when the bubble burst.
The solution? Stick to a clear investment strategy that aligns with your long-term goals. One effective approach is dollar-cost averaging—investing a fixed amount regularly regardless of market conditions. This not only removes emotions from the equation but also helps you take advantage of market volatility. By staying disciplined and avoiding impulsive decisions, you can let your TFSA work its magic and grow your wealth over time.
4. Sitting on the Sidelines (Using it as a Savings Account)
Far too many Canadians treat their TFSA like a glorified savings account, leaving the money in cash or low-interest savings vehicles. While this feels “safe,” it’s a hidden wealth killer. The opportunity cost of not investing is enormous, especially in today’s inflationary environment. A 2022 BMO survey found that 56% of Canadians with TFSAs held cash as their primary asset, and 29% reported that cash comprised at least three-quarters of their TFSA holdings
Meet Sarah: She keeps $50,000 in a TFSA savings account earning 1.5% annually, thinking it’s the safest option. Meanwhile, her friend Alex invests the same $50,000 in a diversified ETF portfolio averaging 6% per year. After 20 years, Alex’s investment grows to nearly $160,000, while Sarah’s savings barely reach $65,000. That’s a difference of $95,000—just from choosing to invest instead of sticking to low-interest savings. The power of investing over time is truly remarkable.
The reason this mistake is so common lies in loss aversion, a cognitive bias where the fear of losing money outweighs the potential for gains. Seeing your account balance grow, even minimally, feels comforting because there’s no immediate “loss” to trigger discomfort. In reality, the loss is hidden—it’s the wealth you’re failing to grow by not investing.
This bias is reinforced by status quo bias, where sticking to what feels familiar (like leaving money in cash) prevents action, even when better options are available. Combine this with a general fear of market volatility, and many Canadians end up leaving their TFSA vastly underutilized.
This habit often persists because the “loss” doesn’t feel tangible—your account balance still grows, albeit minimally. To avoid this, calculate your actual cash needs for emergencies, and invest the remainder. Letting your money work harder ensures your TFSA becomes a true wealth-building tool rather than a stagnant pool of cash.
5. Taking Too Much Risk & Chasing Trends
On the flip side, some Canadians take excessive risks in their TFSAs by chasing hot stocks or speculative investments. Fueled by FOMO, they pour money into trendy sectors or volatile assets without understanding the risks. This approach can backfire, leading to significant losses that are hard to recover.
The TFSA’s tax-free nature makes it tempting to take big risks, but this often leads to poor outcomes. For example, investing heavily in a single stock or cryptocurrency can wipe out years of contributions if the investment tanks. Remember the GameStop frenzy? It seemed like everyone was going to “the moon” until the rocket ran out of fuel, leaving many investors stranded with major losses.
A balanced approach is key. Diversify your portfolio across asset classes and avoid putting all your eggs in one basket. Stick to a well-thought-out investment plan that aligns with your goals and risk tolerance. By avoiding the temptation to chase trends, you’ll protect your TFSA from unnecessary losses while still achieving solid growth.
If you want to learn a more attainable way to grow a huge TFSA, check out my very first video which talks about how to reach a $1 million TFSA
6. Keeping Non-Canadian Dividend Stocks in TFSAs
A lesser-known wealth killer is holding non-Canadian dividend-paying stocks in a TFSA. These dividends are subject to foreign withholding taxes, which reduce your returns and can’t be recovered in a TFSA.
U.S. dividends typically face a 15% withholding tax in your TFSA. Here’s a simple example: Suppose you own $10,000 of a U.S. stock paying a 6% annual dividend. That’s $600 in dividends each year. However, with the 15% withholding tax, $90 is deducted.
To optimize your portfolio, keep Canadian dividend stocks or growth-oriented assets in your TFSA, and hold foreign dividend stocks in an RRSP.
7. Starting Too Late
Procrastination is a silent TFSA killer. Starting late means missing out on years of tax-free growth, which compounds significantly over time. The earlier you begin, the more your investments can grow without interference from taxes.
Even if you’ve delayed, it’s never too late to start. Max out your contribution room, invest wisely, and avoid further delays. The TFSA is one of the best tools to secure your financial future, so don’t let procrastination rob you of its full potential.
8. Not Seeking Help
I know a lot of you watching this are diehard do-it-yourself investors. But DIY investing isn’t for everyone, and many Canadians could significantly benefit from some guidance from a professional. While some excel at managing their TFSAs independently, others face challenges like lack of time, emotional decision-making, or insufficient knowledge.
For those feeling frustrated by DIY investing, overwhelmed by its demands, or underwhelmed by their results, seeking professional guidance can be a game-changer.
Studies by the Investment Funds Institute of Canada (IFIC) and others highlight the measurable benefits of financial advice. Research shows that advised households consistently save at higher rates, accumulate more wealth, and enjoy better retirement outcomes.
Financial advisors don’t just help with investment strategies—they provide tailored guidance to align your TFSA with your long-term goals, optimize tax efficiency, and navigate life’s major transitions like retirement or home buying. Advisors also act as behavioral coaches, helping clients avoid emotional pitfalls such as panic selling during downturns or chasing risky trends.
Even with years of experience and financial designations, I still rely on a planner from my company to help craft my own financial strategy. It’s a bit like pair programming for coders: even the most experienced developers benefit from a second set of eyes to review their code, catch potential bugs, and offer fresh insights. A financial planner provides that same valuable perspective—bringing structure, expertise, and new ideas to see that your TFSA and overall financial strategy are optimized and working as hard as possible for you.
At Blueprint Financial, we help Canadians eliminate silent wealth killers like missed TFSA opportunities, inefficient tax strategies, and emotional investing mistakes.
To make the most of your TFSA investing and build long-term wealth, book a consultation. Don’t forget to like this video, and subscribe for more future insights!