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Young savers, who’re just starting their saving journey through their Tax-Free Saving Accounts (TFSAs), have many investing options these days.
Some of them are too tempting to ignore, such as highly speculative cryptocurrencies and marijuana stocks. People are doubling their money in a matter of weeks.
Next comes technology stocks, which the young investors find more attractive, as they’re the ones who consume technology the most and understand it better.
But I’m not going to recommend either of the above options for new investors. The reason is simple: with greater returns comes greater risk. And I don’t want you to lose your hard-earned savings in your first investing experience.
Investing in stable dividend-paying stocks
I believe investing should be simple, not complicated. It’s just like becoming a partner in a solid business that produces products and services that we use in our daily lives. Such businesses are usually boring and old-fashioned. You won’t find people talking about these companies in offices and parties.
But the companies that have achieved long-term stability in their revenues, and built large barriers for new entrants are usually the ones that offer returns that beat the market in the long run.
Let’s use the example of banks, telecom companies, power and gas utilities, and insurance providers. These businesses are built-to-last and they are best-positioned to generate growing incomes to distribute among their partners or shareholders.
You should start your saving journey by buying the best dividend stocks and then re-investing those dividends to buy more of their shares. This partnership will create a powerful saving tool for you. As the years tick by, you’ll realize that this strategy is producing a steady stream of returns.
In Canada, we have many options if you want to invest in dividend-paying stocks. The safest way to invest your TFSA dollars is to pick the top dividend payers and hold them for a long time.
Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Enbridge Inc (TSX:ENB)(NYSE:ENB), BCE Inc. (TSX:BCE)(NYSE:BCE), and Canadian National Railway Company (TSX:CNR)(NYSE:CNI) are some of the leading companies in their respective sectors. These companies have a solid track record of producing superior returns and rewarding their investors.
TD Bank, one of Canada’s largest lenders, distributes between 40% and 50% of its income to shareholders each year. During the past five years, TD Bank stock has provided ~80% in total returns, including dividends and capital gains.
If you had invested $10,000 in Enbridge stock a decade ago, for example, you would have made a total return of more 300%, or about $37,000 in your savings.
The bottom line
Don’t be tempted by short-term gains. You shouldn’t start your TFSA fund by investing in products that are hard to understand and too risky. For new savers, the safest way to create wealth is to invest in solid dividend-paying stocks. That’s how you can build your long-term savings portfolio with a disciplined investment approach.
Fool contributor Haris Anwar has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway and Enbridge. Enbridge is a recommendation of Stock Advisor Canada. Canadian National Railway is a recommendation of Stock Advisor Canada.