If you’re a Canadian reading this then chances are that you’re entitled to open a Tax Free Savings Account (TFSA).  These accounts are a really great way to invest in high risk vehicles like penny stocks.  You might think not but a very real opportunity exists to make a significant impact on your retirement by taking a penny stock approach to your TFSA account.

The reason is quite simple.  When you cash out of a TFSA you do not need to pay any capital tax, nor any other type of tax.  It’s a sweet deal, no tax at all.  Normally with penny stocks we are looking for outside gains of significant magnitude.  A penny stock returning 100%, 200% and even 2000% are possible.  The amount of profit you decide to take on any particular trade is naturally up to you. The biggest thing though is that when selling you would need to pay a significant portion of your profits in taxes.  No one wants that.

The Downside

You will have losses.  This much is true when investing in penny stocks and the market in general.  No one is a 100% winner all of the time.  If you chosen to invest outside of a TFSA you will be able to offset your gains with a capital loss however in any case you would expect yourself to be profiting and if your losses offset your gains you’re not accomplishing anything except generating more paperwork.  So take the positive approach and assume that you’re going to be profitable and invest through your TFSA.

The Opportunity

Investing in penny stocks through a TFSA is a truly interesting opportunity if you look at the numbers.  Let’s say that you have $10,000 invested across 5 companies ($2,000).  In the run of a year 4 of the stock lose 15% of their value (and trigger stop loss) and one of the stocks manages to hit big and rises 200%.

$2,000.00 15% 300 $1,700.00
$2,000.00 15% 300 $1,700.00
$2,000.00 15% 300 $1,700.00
$2,000.00 15% 300 $1,700.00
$2,000.00 200% 4000 $6,000.00
$12,800.00

You would be ahead by $2,800 and you lost money on 4 of the 5 stocks.  Profiting on 20% of trades is not a bad thing.  Not even half of the time do your trades need to be right to get ahead.  This is where investing in penny stocks has so much potential.  By picking one good diamond among the rough you can make a significant impact.

What would happen if the stock you picked rocketed up 2000% percent in one year?

$2,000.00 15% 300 $1,700.00
$2,000.00 15% 300 $1,700.00
$2,000.00 15% 300 $1,700.00
$2,000.00 15% 300 $1,700.00
$2,000.00 2000% 40000 $42,000.00
$48,800.00

Although the results might not be typical if you had one of these events happen every year that would lead to a possible retirement in less than 10 years or at least a life with work as an option.  Everyone’s retirement is different of course and the huge returns aren’t always possible.

The important thing to realize here is that you hardly need to be a consistent winner to remain profitable with penny stocks.  A close eye to the numbers is essential and constant due diligence to ensure you’re maintain the soundness of your investment is required.  You still need to be a winner some of the time.  But by doing so inside a TFSA you’ll be able to draw out that money without needing to pay the tax man for the privilege of doing so.