Now seems like a great time for young millennials to top-up their TFSA (Tax-Free Savings Accounts) with blue chips while the price of admission continues to contract with every move lower in this stock market sell-off.
With the FHSA (First Home Savings Account) now available to most Canadians who’ve been shut out of the housing market, many young investors can keep that dream of first-time homeownership alive by contributing and investing while markets are down.
Indeed, a run-of-the-mill index fund that invests in the S&P 500 or Nasdaq 100 is a fine buy if your bank doesn’t let you invest in individual stocks with your FHSA. Heck, even guaranteed investment certificates (GICs) are a great option right now while rates flirt with the 6% mark! Either way, Canadians should ensure they meet the criteria (never having owned a home) to open an FHSA before opening an account.
Your TFSA and FHSA could help you get many steps closer to your financial goals
If you do choose to go down the route of mutual funds with your FHSA, however, please do be sure to do your homework and keep those pesky fees to a minimum!
Indeed, the MER (management expense ratio) on mutual funds is still too lofty for my liking. MERs north of 2% are a no-go for me, personally. Heck, I’d not even be comfortable with a 1% MER, given many passive investment products like ETFs (Exchange Traded Funds) charge a fraction of a percent for management!
Further, many mutual fund managers fail to beat the market. And I’d rather not pay them hefty fees when DIY investors probably can do a better job than the pros by staying disciplined, patient, and waiting for the bargains to come to them.
Indeed, not everybody has the time or patience to pursue DIY investing. But it is worth it. And the fact that you’re reading this piece suggests you’re already well ahead in the game. Further, if you continue your investment education journey, I have no doubt that you can outdo the pros who charge those 2-3% MERs. And, of course, that 2-3% MER is yours to keep, and reinvest in your TFSA or FHSA.
As for the TFSA, I’m all about choosing individual stocks that have what it takes to outpace the broader TSX Index. Indeed, the TSX Index isn’t too hard to beat, given its heavy weighting in financials (which are hurting badly right now) and commodity plays (which aren’t doing much better).
CPKC stock: A great core holding as it falls into November
As for the one top stock I’d be looking to own for a TFSA (or FHSA if it allows for stock-picking), I’d consider shares of CP Kansas City Southern (TSX:CP). The stock has been under pressure over the past month, thanks in part to the lower financial forecast delivered by the management team. Indeed, nobody should be surprised that the railway is feeling the pressure from macro headwinds.
CEO Keith Creel cited “economic headwinds” as a major reason for the railway’s recent woes. I’d argue CP is wise to guide lower as macro uncertainties build. Of course, CP stock is right back to where it was back in the second quarter of 2021 at $96 and change.
Shares go for less than 21 times trailing price-to-earnings at writing. And though the sluggishness could persist into the new year as a recession looks to strike, I’d not be afraid of buying a high-quality titan like CP stock on the dip.
At around $96, CP shares look to be sitting at a strong level of support. Of course, if it breaks, the stock could be headed much lower, perhaps to the mid-$80 levels. Either way, CP is worth watching as it sinks alongside peers in the rail scene.