The key selling point of the Tax-Free Savings Account (TFSA) is flexibility. Both short- and long-term savers can stand to largely benefit from maxing out their TFSAs each year. In addition, there are plenty of eligible funds to choose from to hold within a TFSA.
When it comes to retirement savings, the Registered Retirement Savings Plan (RRSP) is often top of mind for Canadians, and rightfully so. The yearly contributions have a much higher limit than that of the TFSA. That doesn’t mean that the TFSA can’t also be leveraged to boost your retirement savings, though.
While the contribution limits may be lower in the TFSA, Canadians can still benefit from tax-free, compounded growth. And after years of watching your investments grow, a withdrawal can be made at any point in time, completely free of paying any tax at all.
Owning individual stocks within a TFSA
Once you’ve decided to maximize your retirement savings and open a TFSA, you’ll need to decide on the types of funds you’d like to buy. Of course, to benefit from the beauty of compound interest, you’ll need to own funds that have growth potential.
For those looking to earn a steady return over the long term, stocks should be top of mind. Stocks will certainly have years where returns may be minimal or even yield a net loss. But over the long term, there aren’t many more dependable options to earn growth than the stock market.
With that said, I’ve reviewed two top TSX stocks that any Canadian could feel good about holding for the long term.
TSX stock #1: Constellation Software
The nearly $3,000 price tag understandably may scare some investors away. It’s a steep price to pay if your broker doesn’t allow the option to buy fractional shares. But for those willing to shell out the cash, Constellation Software (TSX: CSU) is a top-quality choice for Canadian investors in search of growth.
The tech giant has quietly been one of the top-performing Canadian stocks since it joined the TSX close to 20 years ago. Growth has slowed in recent years, though, as the business is now valued at a massive market cap of more than $50 billion. Still, shares are up a market-crushing 150% over the past five years.
The tech sector can be a volatile one, no argument there. But Constellation Software is not an unprofitable start-up. This is a well-established business that’s poised for many more years of delivering market-beating returns.
TSX stock #2: Toronto-Dominion Bank
To balance out the growth-oriented companies in an investment portfolio, you’d be wise to own a few slower-growing dividend all-stars. And fortunately, the TSX has no shortage of those types of stocks.
Passive-income investors can’t go wrong with owning shares of Toronto-Dominion Bank (TSX: TD). Canada’s second-largest bank offers its shareholders dependability and a top dividend.
At today’s stock price, TD Bank’s dividend is yielding close to 5%.
Not all stocks in an investment portfolio need to earn a double-digit return each year to be considered successful. Having a well-diversified portfolio is a major key to long-term success. Together, Constellation Software and TD Bank can provide TFSA investors with a great starting point for both diversification and long-term growth potential.
