TFSA Investors: Make 3 Changes in Your TFSA Portfolio

Every investor has a different investment strategy, but a few good practices can help all RRSP and TFSA investors.

| More on:

Every TFSA holder may have a different approach to their TFSA. They may use the account purely for cash, which is highly advised against. That’s because cash in TFSA, even with a relatively healthy interest rate, cannot help you beat inflation. And even Canadians that invest in their TFSAs might consider making positive changes in their portfolios.

Replace cash with dividend stocks

Many TFSA holders, including the ones that have invested a healthy portion of their TFSA funds into different stocks, tend to keep cash for a rainy day. However, stocks can be just as liquid, and you can sell them almost instantly to produce cash to meet your emergency needs. And if you use that cash to buy a generous dividend stock like True North Commercial (TSX: TNT.UN), you may build a sizeable cash reserve within your TFSA.

For example, if you have about $20,000 tucked away in your TFSA for a rainy day (in cash), and you use it to buy shares of the REIT, it will generate over $1,600 in cash through dividends. In five years (assuming no dividend cuts), you will have a small cash nest egg of about $8,000. As for your original capital, True North is a relatively stable stock, and, unless you are selling during a market crash, you will likely sell for a relatively insignificant profit or loss.

Add a little bit of risk

A conservative investment approach is healthy, but being too cautious can cost you in terms of lost opportunities. So, it’s a good idea to invest (a relatively small amount) in a risky stock like Organigram (TSX: OGI)(NASDAQ: OGI). It’s not risky because of some fundamental financial weaknesses. Rather, the marijuana industry as a whole is currently riddled with uncertainty.

At its peak, the stock traded at about $7.9 per share. If you buy it at a current price ($1.47) and invest $5,000 in the company, which is a small portion of a fully stocked TFSA, you will get about 3,400 shares of the company. And if the stock rises to its peak valuation in the future and you sell it at the right time, you can grow your capital to over $25,000. Even if it happens after a decade, it would still beat most conservative growth stocks.

Don’t disregard long-term holdings

A lot of investors have different approaches to their TFSA and RRSP: for example, short-term holdings in TFSA and long term in RRSP. And while it’s a good idea to keep rapidly growing stocks in an account, you have access to before retirement, that doesn’t mean your TFSA portfolio shouldn’t have long-term holdings at all, especially if you have decades yet to grow.

A long-term buy-and-forget stock like Royal Bank of Canada (TSX: RY)(NYSE: RY) can be a powerful asset in your TFSA. It’s a reliable grower and a part of your portfolio that you don’t need to touch, so the growth will keep on accumulating. And if you don’t want to cash in the dividends, opting for a DRIP program will ensure that your stake in the bank keeps growing.

Foolish takeaway

Your TFSA can be a powerful financial asset or merely a cash “drawer” from which inflation swipes away a few bucks every month. It’s your investment choices and the chances you are willing to make in your investing approach that can ensure that it becomes an asset.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends OrganiGram Holdings.

More on Dividend Stocks

arrows hit bullseye on target
Dividend Stocks

Buy the Dip: This Dividend Giant Might Be Oversold

This company has increased its dividend in each of the past 26 years.

Read more »

Dividend Stocks

Why This Unglamorous Stock Has Paid Investors for Decades

Canada’s first Dividend Knight that has paid investors for decades is anything but unglamorous.

Read more »

doctor uses telehealth
Dividend Stocks

Vital Infrastructure Is a Savvy TFSA Stock Paying 7% and the Price is Right

Vital Infrastructure Property is a defensive TFSA stock that gives investors high-yield income and predictable returns.

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

No Time for Stock Research? This 1 ETF Does the Work for You

The iShares S&P/TSX Capped Composite Index Fund (TSX:XIC) eliminates the need for stock picking.

Read more »

woman holding steering wheel is nervous about the future
Dividend Stocks

Does Retirement Feel Far Away? These TSX Dividend Stocks Can Speed Things Up

These stocks have made some long-term investors quite rich.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How Much You Really Need in a TFSA to Make $500 a Month

It takes quite a bit of money to get $500 per month in a TFSA if you invest in index…

Read more »

up arrow on wooden blocks
Dividend Stocks

2 Great Canadian Dividend Stocks That Just Raised Their Payouts Again

These companies have delivered annual dividend growth for decades.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

TFSA Passive Income: 3 Incredible Stocks That Earn $2,148/Year

These Canadian stocks have a solid history of dividend distribution and are likely to sustain their payouts in the years…

Read more »