The Tax-Free Savings Account (TFSA) is one of the best places store your cash during a recession. While we aren’t in one yet, that doesn’t mean you shouldn’t prepare. It was said that a recession would hit first though late 2022, then in early 2023, and now economists are predicting mid-2023 for a moderate recession. So, time will eventually run out.
With that in mind, here’s what I would consider when creating a TFSA recession watchlist.
Think long term
A TFSA was first introduced in 2009 as another method of saving for retirement. With the Registered Retirement Savings Plan (RRSP), you can’t take out cash without being taxed before retirement. But what if an emergency happens? Or what if you want to have other investments? Or what if you simply don’t want to be taxed on income you’ve earned?
Now, there are certainly benefits to the RRSP, but for the TFSA this is an excellent option if you’re unsure of what the next year or so will bring. A recession could happen, leading to a drop in the market. But when the market begins to recover, perhaps you’ll want to cash out and invest elsewhere!
No matter what you decide, your investments should be considered in tandem with your long-term goals. You don’t want to lose money and cash out? Fine; you might want to put your cash in some Guaranteed Investment Certificates (GICs) for now. This will help guide you towards your long-term goals without losing money.
But when the market recovers, I would certainly get back in for long-term growth. GICs are up now, but will drop back quickly. And when that happens, here’s where I’d invest.
Look at blue-chip companies that are going to be around for decades. These are household names that have a strong future outlook coupled with solid historical performance. And there are two I would consider on the TSX today.
First I would look at Canadian Pacific Railway (TSX:CP) on your watchlist. Should shares in this company dip, buy big. This blue-chip company is now the only single line rail that can span North America. It has additional revenue streams coming in from its Kansas City merger and is a substantial opportunity for long-term holders.
Shares are up just 5% in the last year alone, jumping after the merger became official. That means there could be a drop in a recession, as investors look to take their earnings. So, add this to your watchlist and certainly buy on the dip.
Then there’s Brookfield Renewable Partners (TSX:BEP.UN) I would even consider buying now. This was a growth stock that climbed when Joe Biden became president. The thing is, the reason to buy didn’t change. Investors simply took their returns and ran.
Now, Brookfield stock is in a prime position to become a household name when it comes to renewable energy. And it’s a great opportunity with shares trading down 21% in the last year, offering a 4.62% dividend yield as well. While shares may be down in the last year, they’re up 12% year to date. So, I would again wait for another dip before buying in.
Plan for growth in your TFSA by watching opportunities with some of the best blue-chip companies out there. In this case, I would certainly continue to watch CP stock and Brookfield Renewable stock now and in the future. When these two dip as we enter a recession, buy what you can to allow your TFSA to return to profit faster than with any GIC.