The Tax-free Savings Account (TFSA) is one of the most flexible investment accounts for Canadians. The contributions towards your TFSA are not tax-deductible. However, any withdrawals are tax-free, which makes it an ideal vehicle for growth stocks.
The TFSA was introduced back in 2009 and if you were eligible to contribute to the account, your total contribution limit stands at $69,500. Due to tax-free withdrawals, investors can leverage TFSA benefits by generating exponential wealth over the long term.
For example, shares of Apple, Amazon, and Netflix have returned 836%, 2,002%, and 2,560%, respectively in the last 10 years, which means a total investment of $69,500 distributed equally in these three stocks would have returned over $1.2 million today.
Here we take a look at several other growth stocks that you can consider for your TFSA portfolio.
Canadian growth stocks for your TFSA
The market pullback in 2020 provides an opportunity to buy growth stocks at a cheaper valuation. Several retail companies such as Canada Goose and Gildan Activewear are trading over 50% below record highs.
Once lockdown restrictions are eased and normalcy returns, consumer retail spending is bound to increase, which boost to the stock prices of retail companies in the second half of 2020.
The tech industry has been largely unaffected by the dreaded coronavirus. Companies such as Shopify and Kinaxis have crushed market returns. For example, Shopify stock is up 79% in 2020 and this figure for Kinaxis stands at 59%.
Both these Canadian tech companies remain a solid bet for long-term investors given their expected growth and expanding addressable markets.
Canadian tech stocks on the TSX such as Lightspeed have huge exposure to the hospitality and retail space. Despite the recent upward spiral, Lightspeed stock is trading 33% below its record highs. This is another company with the potential to increase investor wealth multi-fold in the upcoming decade due to high growth metrics.
Warren Buffett growth stocks
Canadians who don’t have the time or expertise to pick individual stocks can try to replicate investment strategies of stalwarts like Warren Buffett. The Oracle of Omaha has successfully beaten broader market returns in the past few decades. Warren Buffett owned Berkshire Hathaway has a solid portfolio of quality companies.
Berkshire has invested in tech giants including Apple and Amazon. Further, it has exposure to payment companies such as Visa, Mastercard, and StoneCo. Similar to Lightspeed, these digital payment companies also have strong growth metrics and should outperform broader markets in the upcoming decade.
Diversify your portfolio with U.S.-based stocks
While there are several Canadian growth stocks for TFSA investors, you can also look to buy quality companies south of the border. Investing in U.S.-based companies can help diversify your investments and reduce the risk metrics considerably.
Companies such as Splunk, Okta, The Trade Desk, Roku and several others have crushed market returns in the past and may continue to do so in the foreseeable future.
The Foolish takeaway
Growth stocks have a high beta and trade at a premium. This means such companies are volatile in a sell-off and underperform in a market sell-off.
But they can help investors accelerate their retirement plans and grow wealth over time.
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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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Canada Goose Holdings, Mastercard, Netflix, Okta, Roku, Shopify, Shopify, Splunk, The Trade Desk, and Visa. The Motley Fool owns shares of Lightspeed POS Inc and Stoneco LTD. The Motley Fool recommends GILDAN ACTIVEWEAR INC. and KINAXIS INC and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short June 2020 $205 calls on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.