2 Top Stocks to Buy and Hold in Your RRSP

While aiming for growth and enjoying tax-deferred investment in your RRSP, you should consider these two types of top stocks.

Piggy bank next to a financial report

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Before putting money in your Registered Retirement Savings Plan (RRSP), it’s probably better to contribute to your Tax-Free Savings Account (TFSA) first.

That said, the RRSP is perfect for investing in U.S. dividend stocks. It is an excellent tool for saving and investing for retirement because, in most cases, withdrawals will count as taxable income. This deters Canadians from taking money out of their RRSPs, helping serve the purpose of saving for retirement.

Since RRSP/RRIF withdrawals count as taxable income in your retirement, you’ll want to aim for total returns while being comfortable with your retirement account investments. You can take advantage of tremendous tax savings by investing in these top stocks in your RRSP.

Invest in big-dividend stocks in the U.S.

The dividends from U.S. stocks are not as tax friendly as Canadian eligible dividends, which allow Canadians to enjoy a dividend tax credit. There’s a 15% withholding tax on dividends paid from U.S. corporations to Canadians. However, this tax is exempt in the RRSP. Therefore, you would want to save RRSP room to invest in big-dividend U.S. stocks.

What’s considered a big dividend? The U.S. stock market yields about 1.3%. And the market is relatively expensive compared to historical levels. So, you might seek U.S. dividend stocks that provide a minimum yield of 2.6% — double the market yield.

Pfizer and Merck are blue-chip big-dividend U.S. stocks you can explore. They provide yields of 3.9% and 3.4%, respectively. The reasonably valued healthcare stocks and steady growth should lead to returns that at least match the market’s while providing above-average income.

You can also investigate telecoms AT&T and Verizon as a potential U.S. big-dividend income investment. They offer massive yields of about 7.3% and 4.5%, respectively.

The tax on income from U.S. stocks that are master limited partnerships (MLPs) are taxed differently. You might need to pay taxes on the income from these stocks, even if they reside in your RRSP. If you plan to invest in MLPs, talk to a tax professional first.

Buy growth stocks in your RRSP

The price gains expected from growth stocks can lead to big tax bills down the road. Therefore, if you run out of room in your TFSA, you might use some of your RRSP room for growth stocks.

The goal of growth stocks is total returns that primarily come from price appreciation. So, any growth stocks you are bullish on, whether they are listed on the Canadian or U.S. stock exchanges could be a candidate for purchase.

Here are some large-cap growth stock ideas you can do more research on to determine they fit your growth portfolio. They include Alibaba, Alphabet, Amazon, Facebook, Netflix, Shopify, and Tencent.

The chart below displays the growth of a $10,000 investment from five years ago in each stock. Notably, the Shopify stock investment is based on the TSX listing, not the NYSE.

BABA Chart

Data by YCharts.

The worst investment, Alibaba stock, delivered annualized returns of about 21%, which actually wasn’t bad at all, given the long-term market returns are about 10%. The best investment was Netflix stock, and its annualized returns were nearly 42% per year!

You can also invest in small- or mid-cap growth stocks. However, they often experience bigger corrections than more stable large-cap growth stocks. Therefore, they would require a more active investing approach — perhaps taking at least partial profit on rallies.

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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, Netflix, Shopify, and Tencent Holdings. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. Fool contributor Kay Ng owns shares of Alibaba, Amazon, Facebook, Merck, Netflix, Shopify, and Tencent.

More on Tech Stocks

grow money, wealth build
Tech Stocks

How to Create $100,000 by Investing $500/Month

These two TSX stocks will aid you in building wealth of $100,000 over the next 8.5 years.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Tech Stocks

This Battered Growth Stock Could Soar Over the Next 3 Months

Docebo (TSX:DCBO)(NASDAQ:DCBO) is a top work-from-anywhere stock that may be in for a sizeable move to the upside in coming…

Read more »

financial freedom sign
Tech Stocks

3 Selloff Stocks That Could Set You Up for Life

Are you hoping to take advantage of the stock market selloff? Here are three stocks that could set you up…

Read more »

question marks written reminders tickets
Tech Stocks

Docebo (TSX:DCBO) Stock Is Still Down 63%: Should You Buy it?

The growth potential of many new tech stocks that joined the TSX during the pandemic may have been exaggerated, and…

Read more »

Plant growing through of trunk of tree stump
Tech Stocks

2 Growth Stocks Investors Should Buy Today

Are you looking for stocks to add to your portfolio? Buy these two growth stocks today!

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

3 Tech Stocks I am Buying During a Correction

High-growth tech stocks such as Docebo and Shopify should remain part of your buying list right now.

Read more »

exchange-traded funds
Tech Stocks

2 Tech Sector ETFs to Buy for a Recovery

Individual tech stocks might not fit the risk appetite of many conservative investors. Though, gaining exposure to the entire sector…

Read more »

Growing plant shoots on coins
Tech Stocks

3 Growth Stocks Are Back in the Game: Up to 83% Upside to Come!

Buying a basket of diversified growth stocks can accelerate your retirement plan. Alternatively, you can use profits for a nice…

Read more »