This month the Tax-Free Savings Account (TFSA) contribution limit for 2021 was announced. As of January 1, 2021, we will have a further $6,000 of contribution room to work with in our TFSAs, bringing the total contribution room to $75,500.
That’s a lot of money to work with, yet most Canadians don’t take full advantage of the TFSA. While this year Canadians have become super savers, most still don’t max out on their TFSA contributions.
That’s a real shame, as there is a huge opportunity to make a killing right now. I’m not talking about investing in risky stocks, but if you invest smart, you could set yourself up for early retirement.
Your TFSA goal
There are financial goals you’ll want to meet before retirement, but when it comes to investing in your TFSA there should be one solid goal in mind: invest long term. The goal is to create a savings account you don’t have to worry about too much. You need to find stocks that you can hold onto for decades and see strong results.
This is the advice of Motley Fool analysts, Warren Buffett, and countless other investors. If you invest long term, you leave little chance of missing out on returns. The stock market as a whole trends upwards over decades. There are dips and dives, but then it rebounds. This is the nature of the economy. So if you find stocks you can hold onto for decades, you’ll set yourself up for life.
So what’s special about now?
Now is the time for research. Another market crash is coming, and investors like Warren Buffett are getting prepared. January will see a new U.S. president, which will mean some industries will see less investment, and others more. It’s important to see what those will be as Canada is likely to go along with U.S. investment.
Meanwhile, COVID-19 cases are on the rise, and will probably peak over the holidays as families get together despite warnings. It could even mean returning to lockdown like we saw back in March. This will severely hurt earnings, likely leading to yet another market crash. When that happens, you’ll want to have a number of stocks on your watch list to buy in bulk.
Do you have to wait?
Not necessarily. If you go by the idea of holding long term, it really doesn’t matter when you buy. You’re playing the long game. So, as I said, you’ll likely see large returns if you simply hold for decades. What I would maybe suggest is not maxing out your TFSA right away. Instead, buy up your stock, then add to it later on when the market falls again.
But overall, if there’s one industry I would watch it’s green energy. This area will see huge investment over the next several years, as stated by the Joe Biden administration. Biden plans to take money from pipelines and put it toward green energy projects, so finding stocks in this area would be a huge win.
One strong stock to consider would be Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) in this case. The company has been growing through acquisition in the last few years, with strong revenue coming through its utilities sector. However, it’s starting to move toward green energy projects. Years from now it could be a powerhouse of green energy, with the funds from utilities funding this path to success.
Meanwhile, you’ll receive a 3.94% dividend yield while you wait, and should continue to see similar returns. In the last five years, returns are up 152% for a compound annual growth rate (CAGR) of 30%!
Get prepared as top investors like Warren Buffett have and look out for stocks like Algonquin Power. If you were to put $70,000 into Algonquin at the beginning of 2021, even at these prices, you could have a portfolio worth $91,000 and $2,731.70 in annual dividends. And that’s just from one year! Hold on for decades and you’ll be have returns any investor would envy.
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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 Amy Legate-Wolfe has no position in any of the stocks mentioned.