Why Buying Canadian Stocks in Your TFSA Offers Massive Growth Potential

The TFSA is one of the most important tools that Canadian investors have to buy stocks and maximize their returns.

| More on:
Businessperson's Hand Putting Coin In Piggybank

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

The TFSA was created in 2009, and any Canadian over the age of 18 at the time was eligible to contribute $5,000 and begin investing and buying Canadian stocks.

If you remember, the beginning of 2009 was the middle of the Great Recession. At that point, many stocks both in Canada and the United States had been falling in value significantly, especially through 2008.

Looking back now, when stocks were that cheap, and there was so much fear about the economy, it was actually an incredible time to buy stocks.

If you had only bought an index fund like iShares S&P/TSX 60 Index ETF, an ETF that offers exposure to 60 of the largest stocks in Canada, you could have made 230% or a compounded annual growth rate (CAGR) of 9.3%, not too shabby up until today. An even more popular index like the S&P 500 is up by 346%, or a CAGR of 11.8%.

These are attractive returns to make in just under a decade and a half. Furthermore, many individual stocks have even more impressive performances over that period.

So, if you had just invested capital at the start of 2009, you would have done well for yourself. However, if you had kept saving and contributing cash to your portfolio, your return would be a lot more significant.

For example, a $5,000 portfolio growing at a CAGR of 10% would have $21,000 after 15 years and $87,000 after 30 years. That’s not bad for a simple $5,000 investment.

However, a $5,000 portfolio where the investor saves and adds another $5,000 to their portfolio each year and still earns that same 10% return would have $180,000 after 15 years and a whopping $910,000 after 30 years.

It’s crucial that we utilize our TFSAs to constantly save and contribute cash that we can use to invest in high-quality Canadian stocks.

Why it’s crucial to buy Canadian stocks in your TFSA

There are a few reasons why buying Canadian stocks in your TFSA can offer so much long-term potential.

First off, giving yourself a long timeline for these stocks to grow is crucial. Since 2009, we’ve seen tonnes of innovation in the economy, and many stocks have grown significantly. In addition, buying in 2009 was the lowest point for many stocks on the market. And, of course, buying in a TFSA will maximize your returns, because you don’t have to pay cash on any of the gains you’re making.

That brings us to today. The market is highly volatile once again, and there are plenty of high-quality Canadian stocks to buy for your TFSA.

If you’re looking to find the best Canadian stocks to buy for your TFSA today, here’s one of the top stocks to hold for decades.

One of the best bargains on the market today

One of the best Canadian stocks to buy for your TFSA has to be InterRent REIT (TSX:IIP.UN). InterRent is a residential real estate trust and an exceptional growth stock.

For years, it’s grown its portfolio at an attractive pace. It’s done this by acquiring new properties, which it believes are undervalued or can use upgrades and investments. It then spends tonnes of cash improving its properties and driving the value and the rent up considerably.

This has led to impressive growth in both the value of its units and the cash flow that InterRent is receiving. Although the stock doesn’t pay that much of a yield and instead invests most of its cash in growth, InterRent is still constantly increasing its distribution each year.

In recent months, with all the concern about higher interest rates, InterRent has sold off substantially. The stock now trades at just 0.8 times its estimated net asset value — a significant discount for such a high-quality REIT.

Therefore, if you’ve been looking for the best Canadian stocks to buy for your TFSA while the entire market is cheap, InterRent is one of the first stocks I’d recommend to investors.

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 Daniel Da Costa has positions in INTERRENT REAL ESTATE INVESTMENT TRUST. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Stocks for Beginners

Investing Strategies for Canadians in an Uncertain Economy

These are uncertain times, as the economy grapples with high inflation. Here are four investing strategies for the current market.

Read more »

Tech Stocks

These 3 Cheap Stocks Would Be an Excellent Addition to Your Portfolio

Given their attractive valuation and solid growth potential, these three stocks would be an excellent addition to your portfolio.

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: 2 Top TSX Dividend Stocks to Buy on the Correction

These top dividend stocks look cheap to buy right now for a TFSA focused on passive income.

Read more »

Stocks for Beginners

How to Start Investing in a TFSA in a Down Market

Are you interested in starting a TFSA during a down market? Here are a few tips to keep in mind.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold Stock a Hedge Against Inflation?

Barrick Gold is among the largest gold mining companies globally. Is the stock a good bet amid rising inflation rates…

Read more »

Make a choice, path to success, sign
Stocks for Beginners

TFSA Investors: Must-Have Stock Strategies for Your Retirement

While reliable income stocks could help TFSA investors reduce their risk profile, high-growth stocks have the potential to significantly multiply…

Read more »

Happy diverse people together in the park
Stocks for Beginners

3 Stocks New Investors Should Buy Today

The stock market has been hard to gauge for the past year or so. Which stocks should new investors be…

Read more »

Growing plant shoots on coins
Tech Stocks

Market Correction: Don’t Miss These TSX Growth Stocks

Long-term investors shouldn’t miss this correction to accumulate top TSX growth stocks at prices well below their highs.

Read more »