Broader stock markets have been incredibly volatile over the past year. Some of us forget that volatility works both ways. With the markets ending last week with a bang, thanks in part to major strength in artificial intelligence (AI) and chip stocks, the Nasdaq 100 is now up more than 5% in just two sessions!
It can be uncomfortable to put new money into stocks with your TFSA (Tax-Free Savings Account) after sudden pop. Nobody wants to be caught skating offside, like the many who bought stocks at the peak in late 2021. We’ve also heard some headlines that may be calling for overvaluation in a select few tech (specifically AI) stocks. Regardless, it’s never good to time markets. Whether you’re waiting for the next market correction or the “perfect” time to punch your ticket, it’s likely a better idea to dip a toe into the market waters gradually.
Timing markets is a complicated and frustrating game. It involves quite a bit of luck to get in at the “best” moments over a near-term basis. Personally, I think it’s a waste of time to try to anticipate a local bottom or top. Instead, it may be better to view how your moves fit into the big picture or the grander scheme of things.
TFSA investors: Don’t wait for the next pullback. Think longer term
If you’re a new TFSA investor looking to create a retirement fund in the next 15-20 years, you shouldn’t fret over near-term fluctuations. They may mean less when you’re ready to finally enter retirement in a decade or two down the road.
It would have been nice to buy stocks in January 2023, given the surge that was to come. However, at that time, it seemed risky. We’d been in a year-long American bear market, with little signs that things would turn to the upside — not with rates continuing to rise.
Though you can’t turn back time, you shouldn’t let a run-up in the broader markets leave you sidelined with expectations that market lows will be met again. While a disastrous scenario (no resolution to the U.S. debt ceiling?) could bring us back to such depths, I wouldn’t stay sidelined waiting for such. Instead, it may be a better idea to focus on particular stocks in today’s market that are still cheap.
CN Rail and Fortis stocks: Value in plain sight
CN Rail (TSX:CNR) and Fortis (TSX:FTS) are two such stocks that I think offer a great value for money. TFSA investors who missed this year’s run may be content with the risk/reward scenario to be had after their respective dips off year-to-date highs.
When it comes to railway icon CN Rail and utility firm Fortis, you’re getting stable cash flows at a reasonable price. As a TFSA investor, that’s the most you could ask for in today’s environment. Let others get excited about tech and AI chip stocks. You don’t need to chase hot stocks. Instead, boring stocks that took a step back may be a better (less choppy) way to proceed from here.
CNR stock trades at 19.5 times trailing price to earnings (P/E). With a 2.04% dividend yield, I think you’re getting a wonderful and “moaty” company at a slightly discounted multiple. Meanwhile, Fortis has seen its relief rally fade earlier this month. Coincidentally, the stock also trades at 19.5 times trailing P/E! You’re getting almost twice the amount of yield (3.93% at writing) with Fortis, though.
Personally, I’d not be afraid to pick up shares of both companies with TFSA funds.
