If you are investing for the long run, it is never a bad time to add money and investments to your Tax-Free Savings Account (TFSA). This registered account was created by the Canadian government to allow citizens and residents to accumulate long-term wealth.
When you invest through your TFSA, the CRA does not tax investment income (capital gains, interest, and dividends). There is no tax liability when you withdraw your funds either. You pay no tax on your investment returns, so you can re-invest 100% of your earnings back into more investments. The TFSA is one of the greatest vehicles a Canadian can use for compounding wealth.
Regularly contributing and investing in your TFSA can create life-changing wealth
Over years and decades, this can have a life-changing impact on your finances. You will have to be patient. You will have some bad years, where returns can be negative (like this year). However, if you regularly contribute, you can use that new cash to buy on the dips and pullbacks. Over time, this can also drastically accelerate longer-term returns.
If you are thinking about using your TFSA to buy quality Canadian stocks on the pullback, here are two I would consider buying today.
The best-performing stock in Canada
Constellation Software (TSX: CSU) has one of the best investment track records of any stock in Canada. Over the past 10 years, it has earned a 1,944% return for shareholders. That is a 35% annual rate of return! Its investment track record actually beat out top tech giants like Apple, Microsoft, and Amazon.com.
But for a $40 billion business, it is relatively unheard of and unfollowed by Bay Street. Constellation makes its bread and butter by acquiring and consolidating small niche software businesses across the world.
It has a refined investment criteria that demands high returns on invested capital. This has helped enable significant compounded returns over time. Last year alone, it deployed over $1.3 billion of capital into new software businesses. At some point, these are going to generate outsized cash flow returns.
This top TFSA stock is down nearly 19% this year. It rarely ever pulls back, so now may be an ideal time to add to this stock.
A long-term compounder for your TFSA
Another top Canadian growth stock is Colliers International Group (TSX: CIGI)(NASDAQ: CIGI). Like Constellation, this stock is hardly followed by the media. Yet it has an exceptional track record of delivering returns by over 17% annually for the past 10 years.
Colliers provides a broad spectrum of services for the commercial real estate industry. In the past, it has been known as a more cyclical brokerage business. However, it has significantly diversified its service offerings into property management, engineering/consulting, lending, and asset management.
This year, it has added several large asset management firms to its portfolio. These are higher-margin businesses, so it will help support higher profitability in the coming years.
Colliers is founder led, well capitalized, and exceptionally managed. Not only is it growing, but it is a cheap stock at only 14 times earnings. If you are looking for a TFSA stock to buy and hold forever, this is a great stock to invest in while it is temporarily down and out on the market.
