TFSA Investors: 2 Steps to Shield Your Money From the Market Crash

Protect your investment portfolio and invest in a stock like Toronto-Dominion during the market crash.

| More on:
Value for money

Image source: Getty Images

I cannot talk enough about the Tax-Free Savings Account (TFSA). It is the ultimate savings and investment vehicle designed by the Canadian government for its citizens to help them better manage their finances. The TFSA is a fantastic tool to help you build and accumulate substantial wealth. However, you can lose your contribution room as the markets plunge.

If you withdraw any funds from your TFSA, you can recontribute the same amount the next year.

Your TFSA losing its value, however, is an entirely different matter. It is critical to protect your capital within a TFSA against the ravaging effects of a stock market crash. I am going to discuss two possible ways you can achieve some level of protection for your TFSA portfolio in these trying times.

Stick to value stocks

The TFSA protects you from taxes on any capital gains you earn in your account. It may make it tempting to buy up shares of all the most significant companies you can think of. Where you might be inclined toward the likes of Uber and Amazon, I would advise practicing some restraint.

Growth stocks are tempting for your portfolio, but they can also suffer some of the most substantial losses. The higher the price-to-earnings ratio, the more room there is for the price of the shares to fall. In an economic crisis, that is not what you want to hold on to in your TFSA.

Value investing is a safer strategy. The stocks are not immune from the effects of a market crash, but the equities are less susceptible to steep declines. As long as the underlying company remains intact, value stocks offer you a worry-free option.

Consider a long-term approach

I think the best way to use your TFSA is for long-term investments. Value stocks are likely to grow substantially in the long run. While it might sound surprising to hear, the Toronto-Dominion Bank (TSX:TD)(NYSE:TD) could technically be considered a value stock right now.

At writing, the stock is trading below $55 per share. The current price of TD shares is the lowest they have been for several years. As an investor, it might be off-putting to see a reliable stock like TD plunge with the broader market pullback. Still, I don’t think that you can count TD as being down and out.

The stock is suffering substantial losses during the ensuing market pullback. It also incurred significant losses in previous market corrections. The bank has, however, come back stronger every time. It hit all-time highs in 2018. An integral part of the Big Five Canadian banks, TD might look like it is in a dire situation right now. But I think it could potentially be a phenomenal value stock for your portfolio.

Foolish takeaway

As the COVID-19 pandemic rampages on and the oil price wars continue to worsen, it is becoming increasingly important to take protective measures for your capital. I think investing in the TD stock for your TFSA portfolio could help you become a wealthy investor as the markets recover.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Adam Othman has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Uber Technologies.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

4 Ways to Grow $100,000 Into $1 Million in Retirement Savings

Anyone can build a million-dollar retirement portfolio. Here are four ways you could practically grow $100,000 to $1 million.

Read more »

A shopper makes purchases from an online store.
Dividend Stocks

3 Reasons to Buy TFI Stock Like There’s No Tomorrow

TFI stock (TSX:TFII) had a hard 2023, but now it's set up for a solid 2024, with an acquisition that…

Read more »

Dividend Stocks

5 Secrets of TFSA Millionaires

These lesser-known secrets can help you set up the perfect long-term portfolio and achieve a million-dollar TFSA!

Read more »

analyze data
Dividend Stocks

How to Build a Powerful Passive-Income Portfolio With Just $20,000

These fundamentally strong TSX stocks have paid and increased their dividend in all market conditions. Add these stocks to build…

Read more »

Canadian stocks are rising
Dividend Stocks

iShares S&P/TSX Capped REIT Index ETF (TSX:XRE): Why I Like this ETF Better Than a Rental Property

XRE is a great ETF for gaining exposure to the Canadian real estate sector.

Read more »

Payday ringed on a calendar
Dividend Stocks

3 High-Yield Dividend Stocks That Pay Cash Every Month

These three dividend stocks all offer high yields and have sustainable dividends, making them some of the best investments to…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

3 Stocks That Could Create Lasting Generational Wealth

If you want to start transferring over your wealth, you'll need to actually have some! And these are three stocks…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Down by 25%: Is Canadian Tire Stock a Buy in February 2024?

Take a closer look at this Canadian retail stock if you are looking for low-cost additions to your self-directed portfolio…

Read more »