Stock market investing can be an excellent way to achieve various financial goals. Ultimately, anybody making money wants to make enough to ensure a comfortable retirement in the long run. One way to set yourself up for a comfortable retirement is to make smart use of your Tax-Free Savings Account (TFSA) contribution room.
While it is called a “savings” account, you can use your TFSA as a financial instrument to grow your wealth without incurring taxes. Any income you earn through assets held within a TFSA does not incur income or capital gains tax. You can withdraw from a TFSA without paying any additional taxes as well.
By using it to buy and hold stocks that can deliver substantial wealth growth through capital gains and dividend income, you can create a nest egg to fund a comfortable retired life. To this end, I will discuss two high-quality TSX stocks that can help you lay the foundations of such a portfolio.
Constellation Software
Constellation Software (TSX:CSU) is a $58.38 billion market capitalization diversified Canadian software company. If you have been following the stock market for a few years, you know that tech stocks fell out of favour among Canadian investors.
Inflationary pressures, higher interest rates, and weakness in the broader economy triggered an industry-wide selloff due to the high-risk nature of tech stocks. That said, Constellation Software does not operate like a typical tech stock.
CSU is in the business of acquiring vertical market software (VMS) businesses, then offering the necessary support to turn them into exceptional businesses. While it has focused primarily on small- and medium-sized businesses in the VMS space, it has started acquiring larger businesses. Its solid business model allows CSU stock to grow steadily and sustainably.
Since it is well capitalized, volatile market environments allow CSU stock to make more acquisitions at a bargain. As of this writing, CSU stock trades for $2,754.87 per share, offering payouts at a 0.20% dividend yield. Up by almost 30% year to date, it continues delivering a market-beating performance and does not look like it will slow down soon.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is a mainstay in many stock market investment portfolios, and that should not come as a surprise. The $78.41 billion market capitalization Canadian multinational banking and financial services company is headquartered in Toronto.
One of the Big Six Canadian banks, Scotiabank stock offers you lower risk than the tech sector. Among its closest peers, Scotiabank stock offers you more exposure to international growth.
A stable dividend stock, Scotiabank offers wealth growth through long-term capital gains. However, the real benefit from it is through its shareholder dividends. Scotiabank stock has been paying investors their shareholder dividends every year since 1833.
It has paid dividends through several financial crises and two World Wars without fail. While macroeconomic factors can impact its financials, Scotiabank is well-capitalized enough to weather the storm and come out stronger on the other side.
As of this writing, Scotiabank stock trades for $65.79 per share and boasts a juicy 6.44% dividend yield that you can lock into your portfolio today.
Foolish takeaway
By creating a well-balanced portfolio that offers risk mitigation and wealth growth through dividends and capital gains, your TFSA can be a vital tool to ensure financial freedom. Since you can withdraw money without paying taxes at any point, you can even use your TFSA to fund big-ticket purchases as well.
All it takes is making use of the contribution room available with the right strategy and discipline. If you are preparing a retirement nest egg, assets like Constellation Software stock and Scotiabank stock can be excellent investments to begin setting up such a portfolio.
