Why Now Is the Perfect Time to Invest in Your TFSA

The Tax-Free Savings Account (TFSA) is one of the best places to build wealth in Canada. Here’s why now is the perfect time to start using it.

| More on:

Image source: Getty Images

The Tax-Free Savings Account (TFSA) is the optimal registered account for building wealth. Being able to invest with zero tax liability is the best way to compound and grow wealth over time. TFSAs are great for investing, because you don’t have to report your earnings at tax time. Likewise, you get to keep 100% of the interest, dividends, or capital gains earned in the account.

Don’t settle for a “high-interest” TFSA

The problem is, many Canadians just settle for using the TFSA as a savings account. Many banks advertise “high-interest” TFSAs. By high interest, they generally mean between 1% and 2%. Often, these rates are only offered during a promotional period of three months to a year. Afterwards, the rate adjusts to a much lower rate.

Today, inflation has been soaring by 3-5%. That means that even if you are catching an interest rate at the high end of the range (say 2%), you are still losing buying power over the long term. If this dynamic persists, your savings will actually lose value over time.

The TFSA is perfect for investing and building long-term wealth

Fortunately, investing in stocks is a great way to hedge against inflation. If you are new to investing, buying a market index for your TFSA is a great place to start. Most people will find it hard to outperform the market, so this is a great passive way to invest.

Or, if you like to be a little more involved, you could buy a basket of thematic or sector-focused stocks in a mix of exchange-traded funds (ETFs).

If you want to be really involved, you can build your own portfolio of individually selected stocks. Given the conflict in Ukraine, the COVID-19 pandemic, and recent economic concerns, many high-quality stocks have recently pulled back to very reasonable prices. As a result, right now is an excellent time to start investing. It isn’t often that you can buy stocks in great businesses at lower-than-average valuations.

Colliers is a perfect long-term stock

If I were starting to build a TFSA portfolio, one stock I would consider buying today is Colliers Group (TSX:CIGI)(NASDAQ:CIGI). Over the past 10 years, this stock has delivered a total return of 837% to faithful shareholders. That is equal to a 25% compounded annual return!

Many may affiliate Colliers with its commercial real estate sales and leasing business. Certainly, this still makes a good portion of its business. However, it has been diversifying into new segments like asset management, lending, real estate management, consulting, and engineering/design. Likewise, the company operates all over the world, so it is very well balanced economically.

In 2021, Colliers had an absolute banner year. Revenues increased by nearly 50% to $4.089 billion. Likewise, adjusted EBITDA and adjusted earnings per share each grew by around 50%. While that level of growth likely won’t persist, the company still has a very positive outlook for 2022 and beyond.

This stock has recently pulled back by nearly 16%. It only trades for 11 times EBITDA and 17 times earnings. That is a significant discount to other peers in the space. It is an attractive growth-to-value prospect.

The Foolish bottom line

Colliers is a high-quality compounder that is an excellent fit for a buy-and-hold TFSA portfolio. Buying this stock when the valuation is depressed provides a great opportunity to accelerate returns over the long term.

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 Robin Brown  owns Colliers International Group.  The Motley Fool recommends COLLIERS INTERNATIONAL GROUP INC.

More on Stocks for Beginners

Increasing yield
Stocks for Beginners

This High-Yield Dividend Stock Is Perfect for New Investors

Here's a stock for new investors to buy for their portfolios but also to help them learn how to analyze…

Read more »

analyze data
Stocks for Beginners

New Investors: How to Get a Pay Raise Every Year

New investors may be uncomfortable with stock price volatility. What if you can get a pay raise every year from…

Read more »

Chalk outline of two arrows pointing in opposite directions
Stocks for Beginners

Idle Cash Earns $0 Until You Start Investing

Canadians can prevent inflation from depleting the value of their idle cash by putting the money to work.

Read more »

A stock price graph showing declines
Stocks for Beginners

Stock Market Correction: How Low Is Low Enough to Buy?

Investors may be thinking about trying to time the market during a stock market correction, but please don't! Instead, follow…

Read more »

Gold medal
Stocks for Beginners

3 Top Stocks for Beginner Investors

The best stocks for beginner investors are defensive and financially strong with a positive outlook -- stocks like Fortis, BCE,…

Read more »

investment research
Stocks for Beginners

Are You Wondering How to Value Stocks? Here Are 3 Popular Methods

If you're a new investor, here are three of the most popular ways to put a value on stocks and…

Read more »

consider the options
Stocks for Beginners

Beginner Investors: Avoid These 6 Cognitive Biases When Stock Picking

The biggest barrier to successful stock picking is poor investment behaviours.

Read more »

Path to retirement
Stocks for Beginners

Millennials: Now Is the Time to Buy All Your Retirement Stocks

Millennials may be feeling discouraged by the market right now, but don't be! You can set yourself up for retirement…

Read more »