When it comes to your TFSA (Tax-Free Savings Account), you should aim to hold investments that you’d ideally like to hold for life. Indeed, the buy-and-hold-forever strategy for investing can be difficult, especially with the rise of disruptive technologies such as generative and predictive artificial intelligence (AI).
In any case, investors should insist on incredibly wide economic moats so that when disruptions do arise, investors can continue to sleep comfortably at night, knowing that the high barriers to entry put forth by a given wide-moat firm will help it protect its slice of economic profits. Indeed, competitive threats are always hungry for a piece of superior profits where they’re to be had.
Think wide moats as you seek long-term holdings
These days, AI chips have proven a profound technology that’s drawn in a wave of sales growth. Despite having a wide moat in the form of top AI talent, the explosive growth in some of the AI chip darlings will not last—not while almost every company is fully alert and aware of the profound growth to be had in the AI chip market.
As more companies target the AI chip scene, eventually, the easiest profits to be had in the space will be gone. And the next thing you know, AI chips are just another commodity that more than just one or two firms can make. Indeed, where there is incredible demand, there are sure to be firms rising up to the occasion to meet the demand and rake in the impressive profits to be had.
In this piece, we’ll concentrate on one wide-moat candidate to hold as a core to your TFSA portfolio.
Berkshire Hathaway
Berkshire Hathaway (NYSE: BRK.B) is an insurance and investment holding firm run by one of the best investors of our time: Warren Buffett. Despite Buffett’s age, he continues to run Berkshire for the long haul. And though he may have been more open to technology stocks compared to the past, he’s still about playing the long game.
Though Berkshire probably won’t score market-crushing gains as it has in the distant past, it’s still a great foundation for any TFSA portfolio. Apart from having a ton of impressive, wide-moat, and well-operated businesses from the one stock, ranging from BNSF railway to Fruit of the Loom, GEICO, and Dairy Queen, the stock doesn’t pay a dividend.
When it comes to your TFSA, that’s a good thing; even U.S. dividends tend to be subject to withholding taxes (of 15% at the time of writing for Canadian investors). Even in a TFSA, you’ll still see just 85% of your dividend payments from U.S. companies held within it. As long as Berkshire doesn’t pay dividends, it ought to be viewed as one of the more tax-efficient TFSA holdings out there for Canadian investors seeking to tap into the U.S. for impressive gains over time.
Finally, Berkshire tends to buy its own stock when it deems it’s undervalued. For a Canadian, buybacks over dividends are the way to go!
