When it comes to your TFSA, you don’t want to take unnecessary risks because you’re only limited to a $5,500 contribution per year, so if you lose a huge chunk of your accumulated contributions over the years, you’re going to have to wait for a new year to begin adding to your TFSA again.
Your TFSA should be a long-term compounder of wealth, not an account where you can speculate in order to realize tax-free capital gains. If you lose a huge chunk of your cumulative annual contributions on speculation with the hopes of becoming one of the TFSA overnight millionaires, you’re going to discover that many peers with conservative strategies are going to break the $1 million mark before you will. While tax-free capital gains may be a compelling incentive to trade and take risks, it’s also true that you can’t use potential losses from a TFSA to offset any gains in your non-registered accounts. Thus, when you lose, you lose and then some!
The TFSA was designed to be a powerful long-term tool for investors to get the absolute most out of compounding interest. In a non-registered account, the effects of compounding are dampened thanks to the taxman. The effects of tax-free compounding are quite profound and it’s possibly unfathomable for most people. It’s therefore essential to make the maximum annual TFSA contribution as soon as humanly possible in order to buy yourself as much time as possible for compounding to work its magical effects.
What type of investments should you be including in your TFSA?
That depends on your unique situation. Older investors may desire extremely conservative securities such as REITs, telecoms, and utilities. But for everybody who’s over a decade away from retirement, a balanced mix of dividend growth and defensive stocks are a great way to go.
If you’re a younger investor like a millennial, you’ll want to inject some high-growth names into your portfolio, preferably growth names that fair well in the event of a recession such as Park Lawn Corp. (TSX:PLC), the only memorialization, cemetery, and funeral service provider that’s publicly traded on the TSX.
It’s hard not to sound morbid when describing the company’s long-term tailwinds, but as I’m sure you’ve figured out, death happens regardless of the state of the economy. Recession, no recession, bull or bear market, the sad fact of life is that everybody dies. When they do, Park Lawn gets business.
Despite being a business that’s been around for over a century, Park Lawn has been making M&A moves in order to consolidate the death industry over the past few years. The result? Consistent year-over-year growth numbers alongside continuously improving margins.
Moving forward, acquisitions are likely to continue to come at a fast and furious rate as Park Lawn inches closer toward becoming the “king of death care.” This is indeed a growth by acquisition story that very few investors are paying attention to at this point, possibly because of the morbid nature of the business and its lower market cap (~$583 million).
The stock trades at a 27.6 forward P/E, and a 2.9 P/B, both of which are lower than the company’s five-year historical average multiples of 24.3, and 4.5, respectively. That’s a pretty fair price to pay for a defensive stock with long-term growth potential and is a great candidate for an extremely long-term investor’s TFSA.
Stay hungry. Stay Foolish.