When the Canadian government launched the Tax-Free Savings Account (TFSA) back in 2009, it was billed as a vehicle that would help low-income Canadians save for retirement. In the years since, very few Canadians have utilized the TFSA to its fullest potential. A significant minority of low-income savers have opened a TFSA – about 36%, according to a recent Institute for Research on Public Policy report. About 90% of their savings go to RRSPs.
The hope is that Canadians in low-income brackets will begin to gravitate more towards TFSAs in the coming years and decades. Inequities in terms of who benefits will only widen as the lifetime contribution limit hits six figures by the middle of the 2020s. That is why Canadians across income brackets should look to take advantage of this fantastic investment vehicle sooner rather than later.
Back in March, I’d discussed three TFSA strategies for investors to consider. Today, we will look at two stocks that are good starts for investors on the hunt for stability and high-growth potential.
Bank stocks are often thought of as boring picks, but the combination of growth, income, and stability offered by these profit machines makes them a great go-to for new investors. Royal Bank is the largest financial institution in Canada. Its stock has climbed 12.6% in 2019 as of close on May 21.
Royal Bank is expected to release its second-quarter 2019 results on May 23. The bank put together a solid first quarter in the face of headwinds, particularly in capital markets segments for the top banks. It hiked its quarterly dividend to $1.02 per share. This represents a 3.8% yield. Royal Bank has achieved dividend growth for eight consecutive years.
Besides being Canada’s largest financial institution, Royal Bank is also one of the most important in the world. The financial sector dominates the TSX, and Royal Bank is an attractive hold that should satisfy new investors in the long term.
TFSA stories in the media are often centered on the incredible gains enjoyed by savvy traders. However, an early investment in a top-tier growth stock can net incredible tax-free gains. Those who bought Shopify after its 2015 initial public offering have been richly rewarded. Shares have soared over 1,000% from its IPO starting price just over four years ago today.
The maximum TFSA contribution in 2015 was $41,000. A $10,000 investment in Shopify at its public launch would have netted investors over $100,000 in tax-free gains. Shopify is, of course, a unique example considering its meteoric rise. Its momentum has carried it to all-time highs this month. The stock boasts an extremely high valuation, but its foray into international markets has the potential to carry Shopify to stunning heights in the coming years. Like Amazon, this is a stock that investors may be kicking themselves for not buying into the pricier it gets.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of Amazon, Shopify, and Shopify. Shopify is a recommendation of Stock Advisor Canada.