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If you’re a relatively young investor who’s more than a decade away from your expected retirement, then it may be in your best interest to “go for growth” when it comes to your TFSA.
While it’s true that capital losses within the TFSA can’t be used to offset gains in any of your non-registered accounts, it’s also true that none of your capital gains are subject to taxation no matter how large. It doesn’t matter if you’re locking in a $500 gain on a trade or a $50,000 gain from a multi-bagger in your TFSA; you’re not going to owe a penny to the tax man.
As such, it’s your best interest to maximize your chances of scoring big capital gains over time, rather than playing it “too safe” with bonds and other lower-return, risk-free investment instruments. If you are a long-term investor with a time horizon of 10 years or more, market flops will inevitably occur, but the overall trajectory will be up, so you’re going to want to be in equities throughout and not fixed-income securities if you’re to get the most out of tax-free compounding.
In today’s ridiculously uncertain environment, investors may be more inclined to use their 2019 TFSA contribution on risk-free securities, seeing as the word recession is being thrown around again after a mere 7% fall in the S&P 500. While Trump’s trade war could hold the global economy hostage, the power of quantitative easing (more rate cuts, please!) can give the U.S. leverage in its economic war against China.
Thus, it just isn’t worth it to sell all your stocks for bonds, seeing as you won’t get as much bang for your buck with yields continuing to fall. Now that growth stocks are heavily out of favour, I’d urge long-term thinkers to consider going against the grain by picking up a growth name like Shopify (TSX:SHOP)(NYSE:SHOP).
Shares of the fast-rising e-commerce star took a breather, pulling back nearly 7% over the past week or so over broader market fears. Shopify is firing on all cylinders, and after its latest earnings report, which I thought changed the long-term investment thesis for the better, I’d treat the slight dip as nothing more than a buying opportunity for long-term thinkers.
“Shopify Plus contributed a larger portion of overall MRRs [or monthly recurring revenues]. As you may remember, one of the biggest bearish concerns was the fact that the number of lower-quality non-Plus users dwarved the number of resilient Plus users. For the first quarter, Plus subscribers accounted for around 26% of MRRs versus 22% on a year-over-year basis.” I said in a prior piece. “That’s a ridiculously large bounce that essentially throws the ‘barely any Plus users’ bear thesis right out the window.”
Despite the incredible progress going on at the company-specific level, Shopify may face substantial downside if we do fall into a recession. Although there are many economic indicators that are flashing warning lights, I think TFSA investors ought to keep adding to their Shopify positions over time because I see it as a significant multi-bagger over the next five, 10, and 20 years out, even with those corrections, recessions, and bear markets factored into the equation.
In +20 years, when you’re finally ready for retirement and are ready to take your profits off the table, you’ll be glad you owned Shopify in TFSA; otherwise, you would have owed a small fortune in taxes. So, in short, aim for growth if you consider yourself a long-term investor and seek to maximize your capital gains in your TFSA to make the tax man envious that he won’t be able to touch a dime.
Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.