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Market Crash 101: How Canadian TFSA Investors Can Retire Wealthy

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The TSX Index just dropped to its lowest level since 2016. This has investors worried about their dream of retiring wealthy.

Canadian savers are shocked by the speed and extent of the decline. Panic has arrived, and investors are selling commodity stocks, tech giants, and everything in between. The volatility will likely continue in the near term, and additional downside could be on the way.

However, history suggest that buying top-quality dividend stocks when the market crashes is a reliable strategy for building retirement wealth. In fact, adding oversold dividend stocks to a self-directed TFSA pension fund can set Canadian investors up to retire rich.

Wealth opportunity

The TSX Index is down 30% in the past month. Industry leaders with strong balance sheets and reliable dividends now trade at prices that appear extremely oversold, even amid the current uncertain times. As a result, dividend yields have jumped dramatically. This presents investors with a rare opportunity to build a strong retirement portfolio.

What’s the secret?

Canadians can buy top dividend stocks inside their TFSAs and take advantage of the tax-free status. Investors can use the full value of the distributions to buy additional shares. This sets off a powerful compounding process that could turn modest initial investments into substantial savings over the course of two or three decades.

When the time comes, spend the money to enjoy a comfortable retirement; all the potential capital gains are yours to keep. That’s correct. The CRA does not take a share of the profits. This means the total value of the retirement wealth fund wouldn’t need to be as high as it would in a taxable account. Even in RRSPs, the funds are taxed upon withdrawal.

Let’s take a look at one stock that has a track record of delivering strong returns and might be an interesting pick to start a balanced TFSA pension wealth fund.

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Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is Canada’s second-largest financial institution by market capitalization. It is also a major player in the United States.

TD has a diversified revenue base coming from various segments. Profitability is strong and the rising U.S. dollar can boost the bottom line when American earnings are converted to Canadian dollars.

TD reported fiscal Q1 2020 adjusted earnings of $3 billion. The board has raised the dividend by a compound annual rate of 10% over the past two decades. TD has a strong capital position. The CET1 ratio is 11.7%. This means the bank has the capital to ride out a downturn.


Financial markets are in chaos today amid concerns the coronavirus outbreak will trigger a global recession. This might put investors off the banks. Risks are certainly rising. An economic downturn is expected in the near term, and central banks are reacting with rate cuts.

Lower interest rates can hit TD’s net interest margins. In addition, a steep rise in unemployment could put pressure on the housing market. TD has a large residential mortgage portfolio, so a wave of defaults would be negative.


Cheaper money gives businesses and consumers relief on variable-rate loans. This should reduce the number of defaults. Lower rates can also boost business investment. Aggressive government fiscal programs are likely on the way. This will support economic activity and could set off a new bull run in the markets once the current downturn runs its course.

TD has the capacity to weather the storm, and the stock appears cheap at just 8.5 times trailing earnings. Investor who buy today can pick up a 5.6% dividend yield. The stock currently trades at $55 per share compared to $75 last month.

Long-term investors have done well with this stock. A $20,000 investment in TD shares just 20 years ago would be worth more than $110,000 today with the dividends reinvested.

The bottom line

Buying top-quality stocks during a market crash takes courage, but it can help patient investors retire rich.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

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