A new year is just around the corner, and you know what that means: new tax-free savings account (TFSA) contribution room.
In 2024, a full $7,000 in new room will be added, bringing the total for people who are 32 or older to $95,000. This amount is up from previous years, so many investors are rightfully excited about the many tax-free investments they’re about to make. If you’re under the age of 18 and will remain under 18 for all of 2024, you’re out of luck, but if you’re above that age, you’ll have at least $7,000 in TFSA room to play with, and potentially up to $95,000 worth.
Personally, I’m old enough to have the full $88,000 this year (less my past contributions). Unfortunately, I’m nearly maxed out, so I’m looking forward to getting an additional $7,000 next year. The following are some investments I’m considering making with the extra $7,000 in room I’m getting next year.
Canadian stocks
First up, we have Brookfield (TSX:BN). This and its sister company Brookfield Asset Management are big on my buy list for 2024. I already own small positions in both, but if future research can address some minor concerns I have with them, I wouldn’t be opposed to turning them into large positions. Brookfield is a classic risk/return tradeoff situation. The company is heavily indebted, with five times more debt than (common) equity. That certainly looks bad on the surface. However, the Federal Reserve just made an interest rate announcement where it said it was holding rates steady. Treasury yields plummeted immediately, while stocks rallied. The interest rates on BN’s variable rate debts are probably falling as we speak. We’ll know when the company’s next earnings release comes out.
Next up, we have the Canadian National Railway. I owned this stock in the past and I’ll buy it again if it starts trading at 15 times earnings or lower.
Finally, we have TD Bank. I own this stock already, and I’ll buy more if the price comes down to a level where it’s trading at eight times earnings.
You might be wondering why I think CN Railway needs to hit 15 times earnings while TD needs 8: it comes down to risk. Banks are the most leveraged companies in the world, which presents certain risks. Normally 10 times earnings is considered pushing it for such companies. Railroads are much less risky and therefore acceptable buys at higher multiples.
U.S. and foreign stocks
Next up we have U.S. and foreign stocks. This being a Canadian website, I don’t usually write about these at length, but they merit a brief mention.
- Bank of America. A bank stock I bought heavily during this year’s banking crisis and again during the treasury yield panic. It’s presently rallying hard: I’ll buy more if it comes down again.
- Alibaba. Presently the cheapest stock in my portfolio. If you add up the company’s balance sheet cash and one year’s worth of free cash flow, the company could afford to pay a special dividend worth half its present market cap. I’ll buy more of this if it stays cheap.
- Taiwan Semiconductor Manufacturing. The contract manufacturer for AI chip companies. Its stock is rising but it remains fairly cheap, so I may add a little more.
Foolish takeaway
There’s $7,000 in TFSA contribution room coming next year and more than 7,000 stocks to buy with it! With stocks, at times you feel like a kid in a candy shop, but if you focus on just the cheap and profitable ones with durable competitive advantages, you’ll do well.
