In 2024, Canadians get to add $7,000 of additional contribution to their Tax-Free Savings Account (TFSA). That is $7,000 that can be invested and earn income with zero requirement to report or pay tax.
The TFSA can be an exceptional tool for long-term investors. If you don’t have to pay any tax on stocks, a higher investment can compound and significantly multiply capital over time. It’s the perfect place to own high quality stocks that you plan to own for years and decades.
If you are looking for some stocks that are worth buying and never selling inside a TFSA, here are three to look at today.
Constellation: A forever TFSA stock
Constellation Software (TSX: CSU) has to be on every long-term investor’s radar. The company has delivered one of the best track record of returns in North America.
CSU stock is up 236% in the past five years, and 1,361% in the past 10 years. It has compounded returns by 30%-plus per year since it had its initial public offering (IPO) in 2006.
Many believe this outperformance has run its course. Yet, Constellation continues to surprise the market at how it can continue to scale its vertical market software consolidation strategy.
It has already spun-out two entities to shareholders and unlocked substantial value. There are likely to be more favourable shareholder moves in the years ahead.
Colliers: A global diversified services provider
Another stock to hold in a TFSA for the very long term is Colliers International Group (TSX: CIGI). Shareholders who have held this stock over the past 20 years have earned a 16% compounded annual total return. Shareholders who are patient could enjoy similar type returns in the coming years.
Colliers has shifted from a largely commercial real estate brokerage business to a diversified services model. Over 65% of its earnings are from recurring services. The company made a very unconventional equity offering recently.
Generally, that is not a good sign. However, Colliers has been a very smart acquirer in the past and consequently has earned strong returns on its investments.
There is a good chance it will make a big acquisition move this year. With its CEO and founder still very invested in the business, this stock could still have wings over the longer term.
TFI: A Canadian transportation legend
TFI International (TSX: TFII) is another staple for compounding your TFSA capital. This stock has returned over 1,000% over the past 10 years. That is a 28% compounded annual return.
Given this business is worth $18 billion today, those types of returns might be challenging to replicate. Yet, if it can replicate even half its prior rate of return in the coming decade, returns will be exceptional.
TFI has a long-term (highly invested) CEO, strong operating platform, and huge market to continue to consolidate. What more can you want in a TFSA stock to hold and never sell?
How to build TFSA wealth
Each of these TFSA stocks have histories of outsized returns, strong business platforms, huge opportunities to grow by consolidation, and long-term, founder-led CEOs. Look for these characteristics in a business, buy them at a reasonable price, hold them for the long run, and you can generate substantial tax-free wealth.
